##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 FORM 10-K
 þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the fiscal year ended December 31, 2007
  o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 Commission File Number 1-5823
 CNA FINANCIAL CORPORATION
 (Exact name of registrant as specified in its charter)
 Delaware
    
    36-6169860(State or other jurisdiction of
incorporation or organization)
    
    (I.R.S. Employer
Identification No.)333 S. Wabash
    
    60604Chicago, Illinois
    
    (Zip Code)(Address of principal executive offices)
 (312) 822-5000
(Registrants telephone number, including area code)
 
  Title of each class
    
    Name of each exchange on
which registeredCommon Stock 
with a par value 
of $2.50 per share
    
    New York Stock Exchange
Chicago Stock Exchange
 Securities registered pursuant to Section 12(g) of the Act: None
 
 þ o
 o þ
 þ o
 þ
  Large accelerated filer þ
    
    Accelerated filer o
    
    Non-accelerated filer o
    
    Smaller reporting company o(Do not check if a smaller reporting company)
 o þ
  DOCUMENTS INCORPORATED BY REFERENCE:




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##### 



Item
    
    
    
    PageNumber
    
    
    
    NumberPART I1.
    
    Business
    
    
    31A.
    
    Risk Factors
    
    
    91B.
    
    Unresolved Staff Comments
    
    
    162.
    
    Properties
    
    
    163.
    
    Legal Proceedings
    
    
    164.
    
    Submission of Matters to a Vote of Security Holders
    
    
    16PART II5.
    
    Market for Registrants Common Equity, Related Stockholder Matters and
Issuer Purchases of Equity Securities
    
    
    176.
    
    Selected Financial Data
    
    
    187.
    
    Managements Discussion and Analysis of Financial Condition and Results
of Operations
    
    
    197A.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    618.
    
    Financial Statements and Supplementary Data
    
    
    669.
    
    Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure
    
    
    1369A.
    
    Controls and Procedures
    
    
    1369B.
    
    Other Information
    
    
    136PART III10.
    
    Directors, Executive Officers and Corporate Governance
    
    
    13711.
    
    Executive Compensation
    
    
    13712.
    
    Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
    
    
    13813.
    
    Certain Relationships and Related Transactions, and Director Independence
    
    
    13814.
    
    Principal Accounting Fees and Services
    
    
    138PART IV15.
    
    Exhibits, Financial Statement Schedules
    
    
    139Investment Facilities and Services AgreementAmendment to Investment Facilities and Services AgreementAcknowledgement to Investment Facilities and Services AgreementAcknowledgement to Investment Facilities and Services AgreementAcknowledgement to Investment Facilities and Services AgreementAcknowledgement to Investment Facilities and Services AgreementAcknowledgement to Investment Facilities and Services AgreementAcknowledgement to Investment Facilities and Services AgreementAcknowledgement to Investment Facilities and Services AgreementAcknowledgement to Investment Facilities and Services AgreementAcknowledgement to Investment Facilities and Services AgreementFourth Amendment to the CNA Supplemental Executive Retirement Plan2008 Incentive Compensation Awards to Executive OfficersSignificant SubsidiariesConsent of Independent Registered Public Accounting FirmCertification of CEOCertification of CFOWritten Statement of the CEOWritten Statement of the CFO




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##### Table of Contents



PART I
 
 ITEM 1. BUSINESS
     Competition
   th
 Regulation
   3




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##### Table of Contents



Employee Relations
   4




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##### Table of Contents



Supplementary Insurance Data
  Supplementary Insurance Data
 Years ended December 31(In millions)
    
    2007
    
    
    2006
    
    
    2005Trade Ratios  GAAP basis (a)Loss and loss adjustment expense ratio
    
    
    77.7
    %
    
    
    75.7
    %
    
    
    89.4
    %Expense ratio
    
    
    30.0
    
    
    
    30.0
    
    
    
    31.2Dividend ratio
    
    
    0.2
    
    
    
    0.3
    
    
    
    0.3Combined ratio
    
    
    107.9
    %
    
    
    106.0
    %
    
    
    120.9
    %Trade Ratios  Statutory basis (preliminary) (a)Loss and loss adjustment expense ratio
    
    
    79.8
    %
    
    
    78.7
    %
    
    
    92.2
    %Expense ratio
    
    
    30.0
    
    
    
    30.2
    
    
    
    30.0Dividend ratio
    
    
    0.3
    
    
    
    0.2
    
    
    
    0.5Combined ratio
    
    
    110.1
    %
    
    
    109.1
    %
    
    
    122.7
    %Individual Life and Group Life Insurance InforceIndividual life
    
    $
    9,204
    
    
    $
    9,866
    
    
    $
    10,711Group life
    
    
    4,886
    
    
    
    5,787
    
    
    
    9,838Total
    
    $
    14,090
    
    
    $
    15,653
    
    
    $
    20,549Other Data  Statutory basis (preliminary) (b)Property and
casualty companies capital and surplus (c)
    
    $
    8,511
    
    
    $
    8,137
    
    
    $
    6,940Life companys capital and surplus
    
    
    471
    
    
    
    687
    
    
    
    627Property and casualty companies written premiums to surplus ratio
    
    
    0.8
    
    
    
    0.9
    
    
    
    1.0Life companys capital and surplus-percent to total liabilities
    
    
    28.2
    %
    
    
    38.9
    %
    
    
    33.1
    %Participating policyholders-percent of gross life insurance inforce
    
    
    4.7
    %
    
    
    4.4
    %
    
    
    3.5
    %
 
 (a)
    
    Trade ratios reflect the results of our property and casualty insurance subsidiaries. Trade
ratios are industry measures of property and casualty underwriting results. The loss and loss
adjustment expense ratio is the percentage of net incurred claim and claim adjustment expenses
and the expenses incurred related to uncollectible reinsurance receivables to net earned
premiums. The primary difference in this ratio between accounting principles generally
accepted in the United States of America (GAAP) and statutory accounting practices (SAP) is
related to the treatment of active life reserves (ALR) related to long term care insurance
products written in property and casualty insurance subsidiaries. For GAAP, ALR is classified
as claim and claim adjustment expense reserves whereas for SAP, ALR is classified as unearned
premium reserves. The expense ratio, using amounts determined in accordance with GAAP, is the
percentage of underwriting and acquisition expenses (including the amortization of deferred
acquisition expenses) to net earned premiums. The expense ratio, using amounts determined in
accordance with SAP, is the percentage of acquisition and underwriting expenses (with no
deferral of acquisition expenses) to net written premiums. The dividend ratio, using amounts
determined in accordance with GAAP, is the ratio of policyholders dividends incurred to net
earned premiums. The dividend ratio, using amounts determined in accordance with SAP, is the
ratio of policyholders dividends paid to net earned premiums. The combined ratio is the sum
of the loss and loss adjustment expense, expense and dividend ratios.(b)
    
    Other data is determined in accordance with SAP. Life statutory capital and surplus as a
percent of total liabilities is determined after excluding separate account liabilities and
reclassifying the statutorily required Asset Valuation Reserve to surplus.(c)
    
    Surplus includes the property and casualty companies equity ownership of the life companys
capital and surplus. 5




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##### Table of Contents



Gross Written Premiums
 Percent of TotalYears ended December 31
    
    2007
    
    2006
    
    2005California
    
    
    9.1
    %
    
    
    9.6
    %
    
    
    9.0
    %Florida
    
    
    7.3
    
    
    
    7.9
    
    
    
    7.1New York
    
    
    6.8
    
    
    
    7.3
    
    
    
    7.9Texas
    
    
    5.9
    
    
    
    5.9
    
    
    
    5.7Illinois
    
    
    3.7
    
    
    
    4.1
    
    
    
    4.2New Jersey
    
    
    3.6
    
    
    
    4.4
    
    
    
    3.8Missouri
    
    
    3.4
    
    
    
    3.0
    
    
    
    2.8Pennsylvania
    
    
    3.2
    
    
    
    3.4
    
    
    
    4.2Massachusetts
    
    
    2.3
    
    
    
    2.4
    
    
    
    3.3All other states, countries or political subdivisions (a)
    
    
    54.7
    
    
    
    52.0
    
    
    
    52.0Total
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
 
 (a)
    
    No other individual state, country or political subdivision accounts for more than 3.0% of
gross written premiums.  Property and Casualty Claim and Claim Adjustment Expenses
   6




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##### Table of Contents



Schedule of Loss Reserve Development
 Calendar Year Ended(In millions)
    
    1997
    
    
    1998
    
    
    1999 (a)
    
    
    2000
    
    
    2001 (b)
    
    

2002
(c)
    
    
    2003
    
    
    2004
    
    
    2005
    
    
    2006
    
    
    2007Originally reported gross
reserves for unpaid claim
and claim adjustment
expenses
    
    $
    28,731
    
    
    $
    28,506
    
    
    $
    26,850
    
    
    $
    26,510
    
    
    $
    29,649
    
    
    $
    25,719
    
    
    $
    31,284
    
    
    $
    31,204
    
    
    $
    30,694
    
    
    $
    29,459
    
    
    $
    28,415Originally reported ceded
recoverable
    
    
    5,056
    
    
    
    5,182
    
    
    
    6,091
    
    
    
    7,333
    
    
    
    11,703
    
    
    
    10,490
    
    
    
    13,847
    
    
    
    13,682
    
    
    
    10,438
    
    
    
    8,078
    
    
    
    6,945Originally reported net
reserves for unpaid claim
and claim adjustment
expenses
    
    $
    23,675
    
    
    $
    23,324
    
    
    $
    20,759
    
    
    $
    19,177
    
    
    $
    17,946
    
    
    $
    15,229
    
    
    $
    17,437
    
    
    $
    17,522
    
    
    $
    20,256
    
    
    $
    21,381
    
    
    $
    21,470Cumulative net paid as of:One year later
    
    $
    5,954
    
    
    $
    7,321
    
    
    $
    6,547
    
    
    $
    7,686
    
    
    $
    5,981
    
    
    $
    5,373
    
    
    $
    4,382
    
    
    $
    2,651
    
    
    $
    3,442
    
    
    $
    8,713
    
    
    $
    Two years later
    
    
    11,394
    
    
    
    12,241
    
    
    
    11,937
    
    
    
    11,992
    
    
    
    10,355
    
    
    
    8,768
    
    
    
    6,104
    
    
    
    4,963
    
    
    
    7,022
    
    
    
    
    
    
    
    Three years later
    
    
    14,423
    
    
    
    16,020
    
    
    
    15,256
    
    
    
    15,291
    
    
    
    12,954
    
    
    
    9,747
    
    
    
    7,780
    
    
    
    7,825
    
    
    
    
    
    
    
    
    
    
    
    Four years later
    
    
    17,042
    
    
    
    18,271
    
    
    
    18,151
    
    
    
    17,333
    
    
    
    13,244
    
    
    
    10,870
    
    
    
    10,085
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Five years later
    
    
    18,568
    
    
    
    20,779
    
    
    
    19,686
    
    
    
    17,775
    
    
    
    13,922
    
    
    
    12,814
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Six years later
    
    
    20,723
    
    
    
    21,970
    
    
    
    20,206
    
    
    
    18,970
    
    
    
    15,493
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Seven years later
    
    
    21,649
    
    
    
    22,564
    
    
    
    21,231
    
    
    
    20,297
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Eight years later
    
    
    22,077
    
    
    
    23,453
    
    
    
    22,373
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Nine years later
    
    
    22,800
    
    
    
    24,426
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Ten years later
    
    
    23,491
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net reserves re-estimated
as of:End of initial year
    
    $
    23,675
    
    
    $
    23,324
    
    
    $
    20,759
    
    
    $
    19,177
    
    
    $
    17,946
    
    
    $
    15,229
    
    
    $
    17,437
    
    
    $
    17,522
    
    
    $
    20,256
    
    
    $
    21,381
    
    
    $
    21,470One year later
    
    
    23,904
    
    
    
    24,306
    
    
    
    21,163
    
    
    
    21,502
    
    
    
    17,980
    
    
    
    17,650
    
    
    
    17,671
    
    
    
    18,513
    
    
    
    20,588
    
    
    
    21,601
    
    
    
    Two years later
    
    
    24,106
    
    
    
    24,134
    
    
    
    23,217
    
    
    
    21,555
    
    
    
    20,533
    
    
    
    18,248
    
    
    
    19,120
    
    
    
    19,044
    
    
    
    20,975
    
    
    
    
    
    
    
    Three years later
    
    
    23,776
    
    
    
    26,038
    
    
    
    23,081
    
    
    
    24,058
    
    
    
    21,109
    
    
    
    19,814
    
    
    
    19,760
    
    
    
    19,631
    
    
    
    
    
    
    
    
    
    
    
    Four years later
    
    
    25,067
    
    
    
    25,711
    
    
    
    25,590
    
    
    
    24,587
    
    
    
    22,547
    
    
    
    20,384
    
    
    
    20,425
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Five years later
    
    
    24,636
    
    
    
    27,754
    
    
    
    26,000
    
    
    
    25,594
    
    
    
    22,983
    
    
    
    21,076
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Six years later
    
    
    26,338
    
    
    
    28,078
    
    
    
    26,625
    
    
    
    26,023
    
    
    
    23,603
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Seven years later
    
    
    26,537
    
    
    
    28,437
    
    
    
    27,009
    
    
    
    26,585
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Eight years later
    
    
    26,770
    
    
    
    28,705
    
    
    
    27,541
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Nine years later
    
    
    26,997
    
    
    
    29,211
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Ten years later
    
    
    27,317
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total net (deficiency)
redundancy
    
    $
    (3,642
    )
    
    $
    (5,887
    )
    
    $
    (6,782
    )
    
    $
    (7,408
    )
    
    $
    (5,657
    )
    
    $
    (5,847
    )
    
    $
    (2,988
    )
    
    $
    (2,109
    )
    
    $
    (719
    )
    
    $
    (220
    )
    
    $
    Reconciliation to gross
re-estimated reserves:Net reserves re-estimated
    
    $
    27,317
    
    
    $
    29,211
    
    
    $
    27,541
    
    
    $
    26,585
    
    
    $
    23,603
    
    
    $
    21,076
    
    
    $
    20,425
    
    
    $
    19,631
    
    
    $
    20,975
    
    
    $
    21,601
    
    
    $
    Re-estimated ceded
recoverable
    
    
    7,221
    
    
    
    7,939
    
    
    
    10,283
    
    
    
    11,047
    
    
    
    16,487
    
    
    
    15,846
    
    
    
    14,257
    
    
    
    13,112
    
    
    
    10,505
    
    
    
    8,230
    
    
    
    Total gross re-estimated
reserves
    
    $
    34,538
    
    
    $
    37,150
    
    
    $
    37,824
    
    
    $
    37,632
    
    
    $
    40,090
    
    
    $
    36,922
    
    
    $
    34,682
    
    
    $
    32,743
    
    
    $
    31,480
    
    
    $
    29,831
    
    
    $
    Net (deficiency)
redundancy related to:Asbestos claims
    
    $
    (2,367
    )
    
    $
    (2,125
    )
    
    $
    (1,549
    )
    
    $
    (1,485
    )
    
    $
    (713
    )
    
    $
    (712
    )
    
    $
    (71
    )
    
    $
    (17
    )
    
    $
    (7
    )
    
    $
    (6
    )
    
    $
    Environmental claims
    
    
    (541
    )
    
    
    (533
    )
    
    
    (533
    )
    
    
    (476
    )
    
    
    (129
    )
    
    
    (123
    )
    
    
    (51
    )
    
    
    (51
    )
    
    
    (1
    )
    
    
    (1
    )
    
    
    Total asbestos and
environmental
    
    
    (2,908
    )
    
    
    (2,658
    )
    
    
    (2,082
    )
    
    
    (1,961
    )
    
    
    (842
    )
    
    
    (835
    )
    
    
    (122
    )
    
    
    (68
    )
    
    
    (8
    )
    
    
    (7
    )
    
    
    Other claims
    
    
    (734
    )
    
    
    (3,229
    )
    
    
    (4,700
    )
    
    
    (5,447
    )
    
    
    (4,815
    )
    
    
    (5,012
    )
    
    
    (2,866
    )
    
    
    (2,041
    )
    
    
    (711
    )
    
    
    (213
    )
    
    
    Total net (deficiency)
redundancy
    
    $
    (3,642
    )
    
    $
    (5,887
    )
    
    $
    (6,782
    )
    
    $
    (7,408
    )
    
    $
    (5,657
    )
    
    $
    (5,847
    )
    
    $
    (2,988
    )
    
    $
    (2,109
    )
    
    $
    (719
    )
    
    $
    (220
    )
    
    $
    
 7




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##### Table of Contents



(a)
    
    Ceded recoverable includes reserves transferred under retroactive reinsurance agreements of
$784 million as of December 31, 1999.(b)
    
    Effective January 1, 2001, we established a new life insurance company, CNA Group Life
Assurance Company (CNAGLA). Further, on January 1, 2001 $1,055 million of reserves were
transferred from CCC to CNAGLA.(c)
    
    Effective October 31, 2002, we sold CNA Reinsurance Company Limited. As a result of the
sale, net reserves were reduced by $1,316 million.  Investments
  Available Information
 http://www.sec.gov
  8




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##### Table of Contents



ITEM 1A. RISK FACTORS
  If we determine that loss reserves are insufficient to cover our estimated ultimate unpaid
liability for claims, we may need to increase our loss reserves.
   
    
    increases in the number and size of claims relating to injuries from medical products;
 
    
    the effects of accounting and financial reporting scandals and other major corporate
governance failures, which have resulted in an increase in the number and size of claims,
including director and officer and errors and omissions insurance claims;
 
    
    class action litigation relating to claims handling and other practices;
 
    
    construction defect claims, including claims for a broad range of additional insured
endorsements on policies;
 
    
    clergy abuse claims, including passage of legislation to reopen or extend various statutes
of limitations; and
 
    
    mass tort claims, including bodily injury claims related to silica, welding rods, benzene,
lead and various other chemical exposure claims.
  9




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##### Table of Contents



Loss reserves for asbestos and environmental pollution are especially difficult to estimate and may
result in more frequent and larger additions to these reserves.
  
    
    coverage issues including whether certain costs are covered under the policies and whether
policy limits apply;
 
    
    inconsistent court decisions and developing legal theories;
 
    
    continuing aggressive tactics of plaintiffs lawyers;
 
    
    the risks and lack of predictability inherent in major litigation;
 
    
    changes in the volume of asbestos and environmental pollution claims;
 
    
    the impact of the exhaustion of primary limits and the resulting increase in claims on any
umbrella or excess policies we have issued;
 
    
    the number and outcome of direct actions against us;
 
    
    our ability to recover reinsurance for these claims; and
 
    
    changes in the legal and legislative environment in which we operate.
  Environmental pollution claims.
 
    
    whether cleanup costs are considered damages under the policies (and accordingly whether we
would be liable for these costs);
 
    
    the trigger of coverage and the allocation of liability among triggered policies;
 
    
    the applicability of pollution exclusions and owned property exclusions;
 
    
    the potential for joint and several liability; and
 
    
    the definition of an occurrence.
   10




---



##### Table of Contents



Asbestos claims.
 
    
    inconsistency of court decisions and jury attitudes, as well as future court decisions;
 
    
    specific policy provisions;
 
    
    allocation of liability among insurers and insureds;
 
    
    missing policies and proof of coverage;
 
    
    the proliferation of bankruptcy proceedings and attendant uncertainties;
 
    
    novel theories asserted by policyholders and their legal counsel;
 
    
    the targeting of a broader range of businesses and entities as defendants;
 
    
    uncertainties in predicting the number of future claims and which other insureds may be
targeted in the future;
 
    
    volatility in claim numbers and settlement demands;
 
    
    increases in the number of non-impaired claimants and the extent to which they can be
precluded from making claims;
 
    
    the efforts by insureds to obtain coverage that is not subject to aggregate limits;
 
    
    the long latency period between asbestos exposure and disease manifestation, as well as the
resulting potential for involvement of multiple policy periods for individual claims;
 
    
    medical inflation trends;
 
    
    the mix of asbestos-related diseases presented; and
 
    
    the ability to recover reinsurance.
  Catastrophe losses are unpredictable.
  11




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##### Table of Contents



Our key assumptions used to determine reserves and deferred acquisition costs for our long term
care product offerings could vary significantly from actual experience.
  We continue to face exposure to losses arising from terrorist acts, despite the passage of the
Terrorism Risk Insurance Program Reauthorization Act of 2007.
  High levels of retained overhead expenses associated with business lines in run-off negatively
impact our operating results.
  Our premium writings and profitability are affected by the availability and cost of reinsurance.
  We may not be able to collect amounts owed to us by reinsurers.
  12




---



##### Table of Contents



Rating agencies may downgrade their ratings of us and thereby adversely affect our ability to write
insurance at competitive rates or at all.
    We are subject to extensive federal, state and local governmental regulations that restrict our
ability to do business and generate revenues.
  
    
    standards of solvency including risk-based capital measurements;
 
    
    restrictions on the nature, quality and concentration of investments;
 
    
    restrictions on our ability to withdraw from unprofitable lines of insurance or
unprofitable market areas;
 
    
    the required use of certain methods of accounting and reporting;
 
    
    the establishment of reserves for unearned premiums, losses and other purposes;
 
    
    potential assessments for funds necessary to settle covered claims against impaired,
insolvent or failed private or quasi-governmental insurers;
 
    
    licensing of insurers and agents;
 
    
    approval of policy forms;
 
    
    limitations on the ability of our insurance subsidiaries to pay dividends to us; and
 
    
    limitations on the ability to non-renew, cancel or change terms and conditions in policies.
  13




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##### Table of Contents



We are subject to capital adequacy requirements and, if we do not meet these requirements,
regulatory agencies may restrict or prohibit us from operating our business.
  Our insurance subsidiaries, upon whom we depend for dividends in order to fund our working capital
needs, are limited by state regulators in their ability to pay dividends.
  We received subpoenas, interrogatories and inquiries relating to insurance brokers and agents,
contingent commissions and bidding practices, and certain finite-risk insurance products.
   Our investment portfolio, which is a key component of our overall profitability, may suffer reduced
returns or losses, in the event of changing interest rates or adverse credit conditions in the
capital markets.
  14




---



##### Table of Contents



We
have incurred and may incur further investment losses and may incur
underwriting losses, relating to the sub-prime crisis and the
related credit crisis.
   We face intense competition in our industry and may be adversely affected by the cyclical nature of
the property and casualty business.
  We may suffer losses from non-routine litigation and arbitration matters which may exceed the
reserves we have established.
   15




---



##### Table of Contents



We are dependent on a small number of key executives and other key personnel to operate our
business successfully.
  
 ITEM 1B. UNRESOLVED STAFF COMMENTS
  
 ITEM 2. PROPERTIES
  Amount (Square Feet) of BuildingOwned and Occupied or LeasedLocation
    
    and Occupied by CNA
    
    Principal Usage333 S. Wabash Avenue, Chicago, Illinois
    
    904,990
    
    Principal executive offices of CNAF401 Penn Street, Reading, Pennsylvania
    
    171,406
    
    Property and casualty insurance offices2405 Lucien Way, Maitland, Florida
    
    147,815
    
    Property and casualty insurance offices40 Wall Street, New York, New York
    
    110,131
    
    Property and casualty insurance offices675 Placentia Avenue, Brea, California
    
    78,655
    
    Property and casualty insurance offices600 N. Pearl Street, Dallas, Texas
    
    75,544
    
    Property and casualty insurance offices4267 Meridian Parkway, Aurora, Illinois
    
    70,004
    
    Data Center1249 South River Road, Cranbury, New Jersey
    
    67,853
    
    Property and casualty insurance offices3175 Satellite Boulevard, Duluth, Georgia
    
    48,696
    
    Property and casualty insurance offices405 Howard Street, San Francisco, California
    
    47,195
    
    Property and casualty insurance offices
  
 ITEM 3. LEGAL PROCEEDINGS
  
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  16




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##### Table of Contents



PART II
 
 ITEM 5. MARKET FOR THE REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY SECURITIES
    Common Stock Information
 2007
    
    2006Dividends
    
    
    
    
    
    
    
    
    
    DividendsHigh
    
    Low
    
    Declared
    
    High
    
    Low
    
    DeclaredQuarter:First
    
    $
    44.29
    
    
    $
    39.09
    
    
    $
    
    
    
    $
    33.60
    
    
    $
    29.88
    
    
    $
    Second
    
    
    51.96
    
    
    
    42.96
    
    
    
    0.10
    
    
    
    33.20
    
    
    
    30.90
    
    
    
    Third
    
    
    49.18
    
    
    
    37.12
    
    
    
    0.10
    
    
    
    36.04
    
    
    
    33.05
    
    
    
    Fourth
    
    
    41.84
    
    
    
    32.26
    
    
    
    0.15
    
    
    
    40.32
    
    
    
    36.19
    
    
    
    
  Stock Price Performance Graph
 Company
/ Index
    
    2002
    
    2003
    
    2004
    
    2005
    
    2006
    
    2007CNA Financial Corporation
    
    
    100.00
    
    
    
    94.14
    
    
    
    104.49
    
    
    
    127.85
    
    
    
    157.50
    
    
    
    132.85S&P 500 Index
    
    
    100.00
    
    
    
    128.68
    
    
    
    142.69
    
    
    
    149.70
    
    
    
    173.34
    
    
    
    182.86S&P 500 Property & Casualty Insurance Index
    


    100.00
    
    
    
    126.41
    
    
    
    139.58
    
    
    
    160.68
    
    
    
    181.36
    
    
    
    156.04
 
 17




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##### Table of Contents



ITEM 6. SELECTED FINANCIAL DATA
  Selected Financial Data
 As of and for the Years EndedDecember 31(In millions, except per share data)
    
    2007
    
    
    2006
    
    
    2005
    
    
    2004
    
    
    2003Results of Operations:Revenues
    
    $
    9,885
    
    
    $
    10,376
    
    
    $
    9,862
    
    
    $
    9,924
    
    
    $
    11,715Income (loss) from continuing operations
    
    $
    857
    
    
    $
    1,137
    
    
    $
    243
    
    
    $
    446
    
    
    $
    (1,419
    )Income (loss) from discontinued
operations, net of tax
    
    
    (6
    )
    
    
    (29
    )
    
    
    21
    
    
    
    (21
    )
    
    
    2Net income (loss)
    
    $
    851
    
    
    $
    1,108
    
    
    $
    264
    
    
    $
    425
    
    
    $
    (1,417
    )Basic Earnings (Loss) Per Share:Income (loss) from continuing operations
    
    $
    3.15
    
    
    $
    4.17
    
    
    $
    0.68
    
    
    $
    1.49
    
    
    $
    (6.52
    )Income (loss) from discontinued operations
    
    
    (0.02
    )
    
    
    (0.11
    )
    
    
    0.08
    
    
    
    (0.09
    )
    
    
    0.01Basic earnings (loss) per share available
to common stockholders
    
    $
    3.13
    
    
    $
    4.06
    
    
    $
    0.76
    
    
    $
    1.40
    
    
    $
    (6.51
    )Diluted Earnings (Loss) Per Share:Income (loss) from continuing operations
    
    $
    3.15
    
    
    $
    4.16
    
    
    $
    0.68
    
    
    $
    1.49
    
    
    $
    (6.52
    )Income (loss) from discontinued operations
    
    
    (0.02
    )
    
    
    (0.11
    )
    
    
    0.08
    
    
    
    (0.09
    )
    
    
    0.01Diluted earnings (loss) per share
available to common stockholders
    
    $
    3.13
    
    
    $
    4.05
    
    
    $
    0.76
    
    
    $
    1.40
    
    
    $
    (6.51
    )Dividends declared per common share
    
    $
    0.35
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Financial Condition:Total investments
    
    $
    41,762
    
    
    $
    44,096
    
    
    $
    39,695
    
    
    $
    39,231
    
    
    $
    38,100Total assets
    
    
    56,732
    
    
    
    60,283
    
    
    
    59,016
    
    
    
    62,496
    
    
    
    68,296Insurance reserves
    
    
    40,222
    
    
    
    41,080
    
    
    
    42,436
    
    
    
    43,653
    
    
    
    45,494Long and short term debt
    
    
    2,157
    
    
    
    2,156
    
    
    
    1,690
    
    
    
    2,257
    
    
    
    1,904Stockholders equity
    
    
    10,150
    
    
    
    9,768
    
    
    
    8,950
    
    
    
    8,974
    
    
    
    8,735Book value per share
    
    $
    37.36
    
    
    $
    36.03
    
    
    $
    31.26
    
    
    $
    31.63
    
    
    $
    30.95Statutory Surplus (preliminary):Property and casualty companies (a)
    
    $
    8,511
    
    
    $
    8,137
    
    
    $
    6,940
    
    
    $
    6,998
    
    
    $
    6,170Life company(ies)
    
    
    471
    
    
    
    687
    
    
    
    627
    
    
    
    1,177
    
    
    
    707
 
 (a)
    
    Surplus includes the property and casualty companies equity ownership of the life
company(ies) capital and surplus. 18




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##### Table of Contents



ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 Overview
  Index to this MD&A
  Page No.Consolidated Operations
    
    20Critical Accounting Estimates
    
    22Reserves  Estimates and Uncertainties
    
    24Reinsurance
    
    29Restructuring
    
    30Segment Results
    
    30Standard Lines
    
    31Specialty Lines
    
    33Life & Group Non-Core
    
    36Corporate & Other Non-Core
    
    37Asbestos and Environmental Pollution (A&E) Reserves
    
    38Investments
    
    45Net Investment Income
    
    45Net Realized Investment Gains (Losses)
    
    46Valuation and Impairment of Investments
    
    49Asset-Backed and Sub-prime Mortgage Exposure
    
    52Short Term Investments
    
    53Liquidity and Capital Resources
    
    54Cash Flows
    
    54Commitments, Contingencies, and Guarantees
    
    55Off-Balance Sheet Arrangements
    
    55Dividends
    
    56Share Repurchase Program
    
    56Regulatory Matters
    
    56Ratings
    
    56Accounting Pronouncements
    
    57Forward-Looking Statements
    
    58
 19




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##### Table of Contents



CONSOLIDATED OPERATIONS
 Results of Operations
  Years ended December 31(In millions, except per share data)
    
    2007
    
    
    2006
    
    
    2005RevenuesNet earned premiums
    
    $
    7,484
    
    
    $
    7,603
    
    
    $
    7,569Net investment income
    
    
    2,433
    
    
    
    2,412
    
    
    
    1,892Other revenues
    
    
    279
    
    
    
    275
    
    
    
    411Total operating revenues
    
    
    10,196
    
    
    
    10,290
    
    
    
    9,872Claims, Benefits and ExpensesNet incurred claims and benefits
    
    
    5,995
    
    
    
    6,025
    
    
    
    6,975Policyholders dividends
    
    
    14
    
    
    
    22
    
    
    
    24Amortization of deferred acquisition costs
    
    
    1,520
    
    
    
    1,534
    
    
    
    1,543Other insurance related expenses
    
    
    733
    
    
    
    757
    
    
    
    829Restructuring and other related charges
    
    
    
    
    
    
    (13
    )
    
    
    Other expenses
    
    
    401
    
    
    
    401
    
    
    
    329Total claims, benefits and expenses
    
    
    8,663
    
    
    
    8,726
    
    
    
    9,700Operating income from continuing operations before income tax and
minority interest
    
    
    1,533
    
    
    
    1,564
    
    
    
    172Income tax (expense) benefit on operating income
    
    
    (425
    )
    
    
    (450
    )
    
    
    105Minority interest
    
    
    (48
    )
    
    
    (44
    )
    
    
    (24
    )Net operating income from continuing operations
    
    
    1,060
    
    
    
    1,070
    
    
    
    253Realized investment gains (losses), net of participating
policyholders and minority interests
    
    
    (311
    )
    
    
    86
    
    
    
    (10
    )Income tax (expense) benefit on realized investment gains (losses)
    
    
    108
    
    
    
    (19
    )
    
    
    Income from continuing operations
    
    
    857
    
    
    
    1,137
    
    
    
    243Income (loss) from discontinued operations, net of income tax (expense)
benefit of $0, $7 and $(2)
    
    
    (6
    )
    
    
    (29
    )
    
    
    21Net income
    
    $
    851
    
    
    $
    1,108
    
    
    $
    264Basic Earnings per ShareIncome from continuing operations
    
    $
    3.15
    
    
    $
    4.17
    
    
    $
    0.68Income (loss) from discontinued operations
    
    
    (0.02
    )
    
    
    (0.11
    )
    
    
    0.08Basic earnings per share available to common stockholders
    
    $
    3.13
    
    
    $
    4.06
    
    
    $
    0.76Diluted Earnings per ShareIncome from continuing operations
    
    $
    3.15
    
    
    $
    4.16
    
    
    $
    0.68Income (loss) from discontinued operations
    
    
    (0.02
    )
    
    
    (0.11
    )
    
    
    0.08Diluted earnings per share available to common stockholders
    
    $
    3.13
    
    
    $
    4.05
    
    
    $
    0.76Weighted Average Outstanding Common Stock and Common Stock EquivalentsBasic
    
    
    271.5
    
    
    
    262.1
    
    
    
    256.0Diluted
    
    
    271.8
    
    
    
    262.3
    
    
    
    256.0
 20




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##### Table of Contents



2007 Compared with 2006
       2006 Compared with 2005
    21




---



##### Table of Contents



Critical Accounting Estimates
    Insurance Reserves
  22




---



##### Table of Contents



Reinsurance
  Valuation of Investments and Impairment of Securities
   Long Term Care Products
  Pension and Postretirement Benefit Obligations
    23




---



##### Table of Contents



Legal Proceedings
  Reserves - Estimates and Uncertainties
    
    
    increases in the number and size of claims relating to injuries from medical products;
 
    
    the effects of accounting and financial reporting scandals and other major corporate
governance failures, which have resulted in an increase in the number and size of claims,
including directors and officers (D&O) and errors and omissions (E&O) insurance claims;
 
    
    class action litigation relating to claims handling and other practices;
 
    
    construction defect claims, including claims for a broad range of additional insured
endorsements on policies;
 
    
    clergy abuse claims, including passage of legislation to reopen or extend various statutes
of limitations; and
 
    
    mass tort claims, including bodily injury claims related to silica, welding rods, benzene,
lead and various other chemical exposure claims.
  
    
    coverage issues, including whether certain costs are covered under the policies and whether
policy limits apply;
 
    
    inconsistent court decisions and developing legal theories;
 
    
    continuing aggressive tactics of plaintiffs lawyers;
 
    
    the risks and lack of predictability inherent in major litigation;
 
    
    changes in the volume of A&E claims;
 24




---



##### Table of Contents




    
    the impact of the exhaustion of primary limits and the resulting increase in claims on any
umbrella or excess policies we have issued;
 
    
    the number and outcome of direct actions against us; and
 
    
    our ability to recover reinsurance for A&E claims.
    Establishing Reserve Estimates
   25




---



##### Table of Contents




    
    Paid Development,
 
    
    Incurred Development,
 
    
    Loss Ratio,
 
    
    Bornhuetter-Ferguson Using Premiums and Paid Loss,
 
    
    Bornhuetter-Ferguson Using Premiums and Incurred Loss, and
 
    
    Average Loss.
      26




---



##### Table of Contents



Periodic Reserve Reviews
  27




---



##### Table of Contents



28




---



##### Table of Contents



Reinsurance
   29




---



##### Table of Contents



Restructuring
  Segment Results
      30




---



##### Table of Contents



STANDARD LINES
 Business Overview
  Business Commercial
  Results of Operations
 Years ended December 31
    
    2007
    
    
    2006
    
    
    2005(In millions)Net written premiums
    
    $
    3,267
    
    
    $
    3,598
    
    
    $
    3,473Net earned premiums
    
    
    3,379
    
    
    
    3,557
    
    
    
    3,518Net investment income
    
    
    878
    
    
    
    840
    
    
    
    632Net operating income (loss)
    
    
    602
    
    
    
    446
    
    
    
    (87
    )Net realized investment gains (losses), after-tax
    
    
    (97
    )
    
    
    48
    
    
    
    19Net income (loss)
    
    
    505
    
    
    
    494
    
    
    
    (68
    )RatiosLoss and loss adjustment expense
    
    
    67.4
    %
    
    
    72.5
    %
    
    
    90.3
    %Expense
    
    
    32.5
    
    
    
    31.6
    
    
    
    32.7Dividend
    
    
    0.2
    
    
    
    0.5
    
    
    
    0.6Combined
    
    
    100.1
    %
    
    
    104.6
    %
    
    
    123.6
    %
 2007 Compared with 2006
     31




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##### Table of Contents



Gross and Net Carried
Claim and Claim Adjustment Expense Reserves
 December 31
    
    2007
    
    
    2006(In millions)Gross Case Reserves
    
    $
    5,988
    
    
    $
    5,826Gross IBNR Reserves
    
    
    6,060
    
    
    
    6,691Total Gross Carried Claim and Claim Adjustment Expense Reserves
    
    $
    12,048
    
    
    $
    12,517Net Case Reserves
    
    $
    4,750
    
    
    $
    4,571Net IBNR Reserves
    
    
    5,170
    
    
    
    5,543Total Net Carried Claim and Claim Adjustment Expense Reserves
    
    $
    9,920
    
    
    $
    10,114
 2006 Compared with 2005
      32




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##### Table of Contents



SPECIALTY LINES
 Business Overview
   U.S. Specialty Lines
   Surety
 Warranty
 33




---



##### Table of Contents



CNA Global
  Results of Operations
 Years ended December 31
    
    2007
    
    
    2006
    
    
    2005(In millions)Net written premiums
    
    $
    3,506
    
    
    $
    3,431
    
    
    $
    3,372Net earned premiums
    
    
    3,484
    
    
    
    3,411
    
    
    
    3,367Net investment income
    
    
    621
    
    
    
    554
    
    
    
    416Net operating income
    
    
    619
    
    
    
    635
    
    
    
    382Net realized investment gains (losses), after-tax
    
    
    (53
    )
    
    
    25
    
    
    
    2Net income
    
    
    566
    
    
    
    660
    
    
    
    384RatiosLoss and loss adjustment expense
    
    
    62.8
    %
    
    
    60.4
    %
    
    
    68.3
    %Expense
    
    
    26.7
    
    
    
    27.4
    
    
    
    27.4Dividend
    
    
    0.2
    
    
    
    0.1
    
    
    
    0.1Combined
    
    
    89.7
    %
    
    
    87.9
    %
    
    
    95.8
    %
 2007 Compared with 2006
        34




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##### Table of Contents



Gross and Net Carried
Claim and Claim Adjustment Expense Reserves
 December 31
    
    2007
    
    
    2006(In millions)Gross Case Reserves
    
    $
    2,585
    
    
    $
    2,635Gross IBNR Reserves
    
    
    5,818
    
    
    
    5,311Total Gross Carried Claim and Claim Adjustment Expense Reserves
    
    $
    8,403
    
    
    $
    7,946Net Case Reserves
    
    $
    2,090
    
    
    $
    2,013Net IBNR Reserves
    
    
    4,527
    
    
    
    4,010Total Net Carried Claim and Claim Adjustment Expense Reserves
    
    $
    6,617
    
    
    $
    6,023
 2006 Compared with 2005
       35




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##### Table of Contents



LIFE & GROUP NON-CORE
 Business Overview
   Results of Operations
 Years ended December 31
    
    2007
    
    2006
    
    2005(In millions)Net earned premiums
    
    $
    618
    
    
    $
    641
    
    
    $
    704Net investment income
    
    
    622
    
    
    
    698
    
    
    
    593Net operating loss
    
    
    (159
    )
    
    
    (14
    )
    
    
    (51
    )Net realized investment losses, after-tax
    
    
    (36
    )
    
    
    (33
    )
    
    
    (19
    )Net loss
    
    
    (195
    )
    
    
    (47
    )
    
    
    (70
    )
 2007 Compared with 2006
   2006 Compared with 2005
   36




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##### Table of Contents



CORPORATE & OTHER NON-CORE
 Overview
   Results of Operations
 Years ended December 31
    
    2007
    
    2006
    
    2005(In millions)Net investment income
    
    $
    312
    
    
    $
    320
    
    
    $
    251Revenues
    
    
    298
    
    
    
    355
    
    
    
    376Net operating income (loss)
    
    
    (2
    )
    
    
    3
    
    
    
    9Net realized investment gains (losses), after-tax
    
    
    (17
    )
    
    
    27
    
    
    
    (12
    )Net income (loss)
    
    
    (19
    )
    
    
    30
    
    
    
    (3
    )
 2007 Compared with 2006
     Gross and Net Carried
Claim and Claim Adjustment Expense Reserves
 December 31
    
    2007
    
    
    2006(In millions)Gross Case Reserves
    
    $
    2,159
    
    
    $
    2,511Gross IBNR Reserves
    
    
    2,951
    
    
    
    3,528Total Gross Carried Claim and Claim Adjustment Expense Reserves
    
    $
    5,110
    
    
    $
    6,039Net Case Reserves
    
    $
    1,328
    
    
    $
    1,453Net IBNR Reserves
    
    
    1,787
    
    
    
    1,999Total Net Carried Claim and Claim Adjustment Expense Reserves
    
    $
    3,115
    
    
    $
    3,452
 37




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##### Table of Contents



2006 Compared with 2005
     A&E Reserves
     38




---



##### Table of Contents



A&E Reserves
 December 31, 2007
    
    
    December 31, 2006Environmental
    
    
    
    
    
    
    EnvironmentalAsbestos
    
    
    Pollution
    
    
    Asbestos
    
    
    Pollution(In millions)Gross reserves
    
    $
    2,352
    
    
    $
    367
    
    
    $
    2,635
    
    
    $
    427Ceded reserves
    
    
    (1,030
    )
    
    
    (125
    )
    
    
    (1,183
    )
    
    
    (142
    )Net reserves
    
    $
    1,322
    
    
    $
    242
    
    
    $
    1,452
    
    
    $
    285
 Asbestos
   39




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##### Table of Contents



40




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##### Table of Contents



Pending Asbestos Accounts and Associated Reserves
 Net Paid Losses
    
    
    Net Asbestos
    
    
    Percent ofNumber of
    
    
    in 2007
    
    
    Reserves
    
    
    AsbestosPolicyholders
    
    
    (In millions)
    
    
    (In millions)
    
    
    Net ReservesDecember 31, 2007Policyholders with settlement agreementsStructured settlements
    
    
    14
    
    
    $
    29
    
    
    $
    151
    
    
    
    11
    %Wellington
    
    
    3
    
    
    
    1
    
    
    
    12
    
    
    
    1Coverage in place
    
    
    34
    
    
    
    38
    
    
    
    100
    
    
    
    8Total with settlement agreements
    
    
    51
    
    
    
    68
    
    
    
    263
    
    
    
    20Other policyholders with active accountsLarge asbestos accounts
    
    
    233
    
    
    
    45
    
    
    
    237
    
    
    
    18Small asbestos accounts
    
    
    1,005
    
    
    
    15
    
    
    
    93
    
    
    
    7Total other policyholders
    
    
    1,238
    
    
    
    60
    
    
    
    330
    
    
    
    25Assumed reinsurance and pools
    
    
    
    
    
    
    8
    
    
    
    133
    
    
    
    10Unassigned IBNR
    
    
    
    
    
    
    
    
    
    
    596
    
    
    
    45Total
    
    
    1,289
    
    
    $
    136
    
    
    $
    1,322
    
    
    
    100
    %
 Pending Asbestos Accounts and Associated Reserves
 Net Paid(Recovered) Losses
    
    
    Net Asbestos
    
    
    Percent ofNumber of
    
    
    in 2006
    
    
    Reserves
    
    
    AsbestosDecember 31, 2006
    
    Policyholders
    
    
    (In millions)
    
    
    (In millions)
    
    
    Net ReservesPolicyholders with settlement agreementsStructured settlements
    
    
    15
    
    
    $
    22
    
    
    $
    171
    
    
    
    12
    %Wellington
    
    
    3
    
    
    
    (1
    )
    
    
    14
    
    
    
    1Coverage in place
    
    
    38
    
    
    
    (18
    )
    
    
    132
    
    
    
    9Total with settlement agreements
    
    
    56
    
    
    
    3
    
    
    
    317
    
    
    
    22Other policyholders with active accountsLarge asbestos accounts
    
    
    220
    
    
    
    76
    
    
    
    254
    
    
    
    17Small asbestos accounts
    
    
    1,080
    
    
    
    17
    
    
    
    101
    
    
    
    7Total other policyholders
    
    
    1,300
    
    
    
    93
    
    
    
    355
    
    
    
    24Assumed reinsurance and pools
    
    
    
    
    
    
    6
    
    
    
    141
    
    
    
    10Unassigned IBNR
    
    
    
    
    
    
    
    
    
    
    639
    
    
    
    44Total
    
    
    1,356
    
    
    $
    102
    
    
    $
    1,452
    
    
    
    100
    %
  41




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##### Table of Contents



Environmental Pollution
    42




---



##### Table of Contents



43




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##### Table of Contents



Pending Environmental Pollution Accounts and Associated Reserves
 NetEnvironmental
    
    
    Percent ofNet Paid Losses
    
    
    Pollution
    
    
    EnvironmentalNumber of
    
    
    in 2007
    
    
    Reserves
    
    
    Pollution NetDecember 31, 2007
    
    Policyholders
    
    
    (In millions)
    
    
    (In millions)
    
    
    ReservePolicyholders with settlement agreementsStructured settlements
    
    
    10
    
    
    $
    9
    
    
    $
    6
    
    
    
    2
    %Coverage in place
    
    
    18
    
    
    
    8
    
    
    
    14
    
    
    
    6Total with settlement agreements
    
    
    28
    
    
    
    17
    
    
    
    20
    
    
    
    8Other policyholders with active accountsLarge pollution accounts
    
    
    112
    
    
    
    17
    
    
    
    53
    
    
    
    22Small pollution accounts
    
    
    298
    
    
    
    9
    
    
    
    42
    
    
    
    17Total other policyholders
    
    
    410
    
    
    
    26
    
    
    
    95
    
    
    
    39Assumed reinsurance and pools
    
    
    
    
    
    
    1
    
    
    
    31
    
    
    
    13Unassigned IBNR
    
    
    
    
    
    
    
    
    
    
    96
    
    
    
    40Total
    
    
    438
    
    
    $
    44
    
    
    $
    242
    
    
    
    100
    %
 Pending Environmental Pollution Accounts and Associated Reserves
 NetEnvironmental
    
    
    Percent ofNet Paid Losses
    
    
    Pollution
    
    
    EnvironmentalNumber of
    
    
    in 2006
    
    
    Reserves
    
    
    Pollution NetDecember 31, 2006
    
    Policyholders
    
    
    (In millions)
    
    
    (In millions)
    
    
    ReservePolicyholders with settlement agreementsStructured settlements
    
    
    11
    
    
    $
    16
    
    
    $
    9
    
    
    
    3
    %Coverage in place
    
    
    18
    
    
    
    5
    
    
    
    14
    
    
    
    5Total with settlement agreements
    
    
    29
    
    
    
    21
    
    
    
    23
    
    
    
    8Other policyholders with active accountsLarge pollution accounts
    
    
    115
    
    
    
    20
    
    
    
    58
    
    
    
    20Small pollution accounts
    
    
    346
    
    
    
    9
    
    
    
    46
    
    
    
    17Total other policyholders
    
    
    461
    
    
    
    29
    
    
    
    104
    
    
    
    37Assumed reinsurance and pools
    
    
    
    
    
    
    1
    
    
    
    32
    
    
    
    11Unassigned IBNR
    
    
    
    
    
    
    
    
    
    
    126
    
    
    
    44Total
    
    
    490
    
    
    $
    51
    
    
    $
    285
    
    
    
    100
    %
 44




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##### Table of Contents



INVESTMENTS
 Net Investment Income
  Net Investment Income
 Years ended December 31
    
    2007
    
    
    2006
    
    
    2005(In millions)Fixed maturity securities
    
    $
    2,047
    
    
    $
    1,842
    
    
    $
    1,608Short term investments
    
    
    186
    
    
    
    248
    
    
    
    147Limited partnerships
    
    
    183
    
    
    
    288
    
    
    
    254Equity securities
    
    
    25
    
    
    
    23
    
    
    
    25Income from trading portfolio (a)
    
    
    10
    
    
    
    103
    
    
    
    47Interest on funds withheld and other deposits
    
    
    (1
    )
    
    
    (68
    )
    
    
    (166
    )Other
    
    
    36
    
    
    
    18
    
    
    
    20Gross investment income
    
    
    2,486
    
    
    
    2,454
    
    
    
    1,935Investment expense
    
    
    (53
    )
    
    
    (42
    )
    
    
    (43
    )Net investment income
    
    $
    2,433
    
    
    $
    2,412
    
    
    $
    1,892
 
 (a)
    
    The change in net unrealized losses on trading securities included in net investment income
was $15 million and $7 million for the years ended December 31, 2007 and 2005. There was no
change in net unrealized gains (losses) on trading securities included in net investment
income for the year ended December 31, 2006.     45




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##### Table of Contents



Net Realized Investment Gains (Losses)
  Net Realized Investment Gains (Losses)
 Years ended December 31
    
    2007
    
    
    2006
    
    
    2005(In millions)Fixed maturity securities:U.S. Government bonds
    
    $
    86
    
    
    $
    62
    
    
    $
    (33
    )Corporate and other taxable bonds
    
    
    (183
    )
    
    
    (98
    )
    
    
    (86
    )Tax-exempt bonds
    
    
    3
    
    
    
    53
    
    
    
    12Asset-backed bonds
    
    
    (343
    )
    
    
    (9
    )
    
    
    14Redeemable preferred stock
    
    
    (41
    )
    
    
    (3
    )
    
    
    3Total fixed maturity securities
    
    
    (478
    )
    
    
    5
    
    
    
    (90
    )Equity securities
    
    
    117
    
    
    
    16
    
    
    
    38Derivative securities
    
    
    32
    
    
    
    18
    
    
    
    49Short term investments
    
    
    7
    
    
    
    (5
    )
    
    
    Other
    
    
    9
    
    
    
    53
    
    
    
    (10
    )Realized investment gains (losses) before allocation to
participating policyholders and minority interests
    
    
    (313
    )
    
    
    87
    
    
    
    (13
    )Allocated to participating policyholders and minority interests
    
    
    2
    
    
    
    (1
    )
    
    
    3Realized investment gains (losses), net of participating
policyholders and minority interests
    
    
    (311
    )
    
    
    86
    
    
    
    (10
    )Income tax (expense) benefit
    
    
    108
    
    
    
    (19
    )
    
    
    Net realized investment gains (losses), net of participating
policyholders and minority interests
    
    $
    (203
    )
    
    $
    67
    
    
    $
    (10
    )
   46




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##### Table of Contents



Effective Durations
 December 31, 2007
    
    
    December 31, 2006Effective Duration
    
    
    
    
    
    
    Effective DurationFair Value
    
    
    (In years)
    
    
    Fair Value
    
    
    (In years)(In millions)Segregated investments
    
    $
    9,211
    
    
    
    10.7
    
    
    $
    8,524
    
    
    
    9.8Other interest sensitive investments
    
    
    29,406
    
    
    
    3.3
    
    
    
    30,178
    
    
    
    3.2Total
    
    $
    38,617
    
    
    
    5.1
    
    
    $
    38,702
    
    
    
    4.7
    47




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##### Table of Contents



Realized Investment Gains (Losses)
 Years ended December 31
    
    2007
    
    
    2006
    
    
    2005(In millions)Net realized investment gains (losses) on fixed maturity and equity securities:Fixed maturity securities:Gross realized gains
    
    $
    486
    
    
    $
    382
    
    
    $
    361Gross realized losses
    
    
    (964
    )
    
    
    (377
    )
    
    
    (451
    )Net realized investment gains (losses) on fixed maturity securities
    
    
    (478
    )
    
    
    5
    
    
    
    (90
    )Equity securities:Gross realized gains
    
    
    146
    
    
    
    24
    
    
    
    73Gross realized losses
    
    
    (29
    )
    
    
    (8
    )
    
    
    (35
    )Net realized investment gains on equity securities
    
    
    117
    
    
    
    16
    
    
    
    38Net realized investment gains (losses) on fixed maturity and equity securities
    
    $
    (361
    )
    
    $
    21
    
    
    $
    (52
    )
  Largest Realized Investment Losses from Securities Sold at a Loss
 Year ended December 31, 2007
 Fair
    
    
    
    
    
    
    Months inValue at
    
    
    
    
    
    
    UnrealizedDate of
    
    
    Loss
    
    
    Loss PriorIssuer Description and Discussion
    
    Sale
    
    
    On Sale
    
    
    To Sale (a)(In millions)Various notes and bonds issued by
the United States Treasury.
Securities sold due to outlook on
interest rates.
    
    $
    12,815
    
    
    $
    98
    
    
    
    0-6Mortgage backed pass through
securities sold based on view of
interest rate changes.
    
    
    394
    
    
    
    9
    
    
    
    0-6Issuer provides financing to
residential real estate markets and
commercial consumers including
originators and developers in
various markets. The losses were
due to the continued deterioration
in the real estate markets.
    
    
    80
    
    
    
    9
    
    
    
    0-12Bank and financial issuer that came
under pressure due to mortgage
market disruption.
    
    
    36
    
    
    
    5
    
    
    
    0-6State specific general obligation
municipal bonds sold to reduce
exposure due to change in outlook.
    
    
    513
    
    
    
    5
    
    
    
    0-6$
    13,838
    
    
    $
    126
 
 (a)
    
    Represents the range of consecutive months the various positions were in an
unrealized loss prior to sale. 0-12+ means certain
positions were less than 12 months, while others were greater than 12 months. 48




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##### Table of Contents



Valuation and Impairment of Investments
  Carrying Value of General Account Investments
 December 31
    
    2007
    
    
    %
    
    
    2006
    
    
    %(In millions)Fixed maturity securities available-for-sale:U.S. Treasury securities and obligations of government agencies
    
    $
    687
    
    
    
    2
    %
    
    $
    5,138
    
    
    
    12
    %Asset-backed securities
    
    
    11,409
    
    
    
    27
    
    
    
    13,677
    
    
    
    31States, municipalities and political subdivisions  tax-exempt
    
    
    7,675
    
    
    
    18
    
    
    
    5,146
    
    
    
    12Corporate securities
    
    
    8,952
    
    
    
    22
    
    
    
    7,132
    
    
    
    16Other debt securities
    
    
    4,299
    
    
    
    10
    
    
    
    3,642
    
    
    
    8Redeemable preferred stock
    
    
    1,058
    
    
    
    3
    
    
    
    912
    
    
    
    2Total fixed maturity securities available-for-sale
    
    
    34,080
    
    
    
    82
    
    
    
    35,647
    
    
    
    81Fixed maturity securities trading:U.S. Treasury securities and obligations of government agencies
    
    
    5
    
    
    
    
    
    
    
    2
    
    
    
    Asset-backed securities
    
    
    31
    
    
    
    
    
    
    
    55
    
    
    
    Corporate securities
    
    
    123
    
    
    
    
    
    
    
    133
    
    
    
    1Other debt securities
    
    
    18
    
    
    
    
    
    
    
    14
    
    
    
    Total fixed maturity securities trading
    
    
    177
    
    
    
    
    
    
    
    204
    
    
    
    1Equity securities available-for-sale:Common stock
    
    
    452
    
    
    
    1
    
    
    
    452
    
    
    
    1Preferred stock
    
    
    116
    
    
    
    
    
    
    
    145
    
    
    
    Total equity securities available-for-sale
    
    
    568
    
    
    
    1
    
    
    
    597
    
    
    
    1Total equity securities trading
    
    
    
    
    
    
    
    
    
    
    60
    
    
    
    Short term investments available-for-sale
    
    
    4,497
    
    
    
    11
    
    
    
    5,538
    
    
    
    13Short term investments trading
    
    
    180
    
    
    
    1
    
    
    
    172
    
    
    
    Limited partnerships
    
    
    2,214
    
    
    
    5
    
    
    
    1,852
    
    
    
    4Other investments
    
    
    46
    
    
    
    
    
    
    
    26
    
    
    
    Total general account investments
    
    $
    41,762
    
    
    
    100
    %
    
    $
    44,096
    
    
    
    100
    %
   49




---



##### Table of Contents



Maturity Profile
 Percent of
    
    
    Percent ofMarket
    
    
    UnrealizedValue
    
    
    LossDue in one year or less
    
    
    6
    %
    
    
    3
    %Due after one year through five years
    
    
    43
    
    
    
    40Due after five years through ten years
    
    
    22
    
    
    
    23Due after ten years
    
    
    29
    
    
    
    34Total
    
    
    100
    %
    
    
    100
    %
  Unrealized Loss Aging for Non-investment Grade Securities
 Fair Value as a Percentage of Amortized CostGrossEstimated
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    UnrealizedDecember 31, 2007
    
    Fair Value
    
    
    90-99%
    
    
    80-89%
    
    
    70-79%
    
    
    <70%
    
    
    Loss(In millions)Fixed maturity securities:0-6 months
    
    $
    1,549
    
    
    $
    57
    
    
    $
    16
    
    
    $
    3
    
    
    $
    
    
    
    $
    767-12 months
    
    
    125
    
    
    
    7
    
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    813-24 months
    
    
    26
    
    
    
    1
    
    
    
    1
    
    
    
    1
    
    
    
    1
    
    
    
    4Greater than 24 months
    
    
    8
    
    
    
    
    
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    2Total non-investment grade
    
    $
    1,708
    
    
    $
    65
    
    
    $
    20
    
    
    $
    4
    
    
    $
    1
    
    
    $
    90
 Unrealized Loss Aging for Non-investment Grade Securities
 Fair Value as a Percentage of Amortized CostGrossEstimated
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    UnrealizedDecember 31, 2006
    
    Fair Value
    
    
    90-99%
    
    
    80-89%
    
    
    70-79%
    
    
    <70%
    
    
    Loss(In millions)Fixed maturity securities:0-6 months
    
    $
    509
    
    
    $
    2
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    27-12 months
    
    
    87
    
    
    
    1
    
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    213-24 months
    
    
    24
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Greater than 24 months
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total non-investment grade
    
    $
    622
    
    
    $
    3
    
    
    $
    1
    
    
    $
    
    
    
    $
    
    
    
    $
    4
  50




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##### Table of Contents



General Account Bond Ratings
 December 31
    
    2007
    
    
    %
    
    
    2006
    
    
    %(In millions)U.S. Government and affiliated agency securities
    
    $
    816
    
    
    
    3
    %
    
    $
    5,285
    
    
    
    15
    %Other AAA rated
    
    
    16,728
    
    
    
    50
    
    
    
    16,311
    
    
    
    47AA and A rated
    
    
    6,326
    
    
    
    19
    
    
    
    5,222
    
    
    
    15BBB rated
    
    
    5,713
    
    
    
    17
    
    
    
    4,933
    
    
    
    14Non-investment grade
    
    
    3,616
    
    
    
    11
    
    
    
    3,188
    
    
    
    9Total
    
    $
    33,199
    
    
    
    100
    %
    
    $
    34,939
    
    
    
    100
    %
   Separate Account Bond Ratings
 December 31
    
    2007
    
    
    %
    
    
    2006
    
    
    %(In millions)U.S. Government and affiliated agency securities
    
    $
    
    
    
    
    
    %
    
    $
    
    
    
    
    
    %Other AAA rated
    
    
    122
    
    
    
    29
    
    
    
    111
    
    
    
    26AA and A rated
    
    
    224
    
    
    
    54
    
    
    
    242
    
    
    
    56BBB rated
    
    
    73
    
    
    
    17
    
    
    
    75
    
    
    
    17Non-investment grade
    
    
    
    
    
    
    
    
    
    
    6
    
    
    
    1Total
    
    $
    419
    
    
    
    100
    %
    
    $
    434
    
    
    
    100
    %
   51




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##### Table of Contents



Asset-Backed and Sub-prime Mortgage Exposure
 Asset-Backed Distribution
 Security TypePercent
    
    
    Percentof Total
    
    
    of TotalDecember 31, 2007
    
    MBS
    
    
    CMO
    
    
    ABS
    
    
    CDO
    
    
    Total
    
    
    Security Type
    
    
    Investments(In millions)U.S. Government Agencies
    
    $
    1,212
    
    
    $
    1,460
    
    
    $
    
    
    
    $
    
    
    
    $
    2,672
    
    
    
    23.4
    %
    
    
    6.4
    %AAA
    
    
    
    
    
    
    5,297
    
    
    
    2,063
    
    
    
    27
    
    
    
    7,387
    
    
    
    64.5
    
    
    
    17.7AA
    
    
    
    
    
    
    35
    
    
    
    309
    
    
    
    80
    
    
    
    424
    
    
    
    3.7
    
    
    
    1.0A
    
    
    
    
    
    
    56
    
    
    
    206
    
    
    
    222
    
    
    
    484
    
    
    
    4.2
    
    
    
    1.2BBB
    
    
    
    
    
    
    13
    
    
    
    396
    
    
    
    20
    
    
    
    429
    
    
    
    3.8
    
    
    
    1.0Non-investment grade and equity tranches
    
    
    
    
    
    
    1
    
    
    
    28
    
    
    
    15
    
    
    
    44
    
    
    
    0.4
    
    
    
    0.1Total Fair Value
    
    $
    1,212
    
    
    $
    6,862
    
    
    $
    3,002
    
    
    $
    364
    
    
    $
    11,440
    
    
    
    100.0
    %
    
    
    27.4
    %Total Amortized Cost
    
    $
    1,217
    
    
    $
    6,975
    
    
    $
    3,146
    
    
    $
    469
    
    
    $
    11,807Percent of total fair value by security type
    
    
    11
    %
    
    
    60
    %
    
    
    26
    %
    
    
    3
    %
    
    
    100
    %Sub-prime (included above)Fair Value
    
    $
    
    
    
    $
    13
    
    
    $
    1,064
    
    
    $
    28
    
    
    $
    1,105
    
    
    
    9.7
    %
    
    
    2.6
    %Amortized Cost
    
    $
    
    
    
    $
    13
    
    
    $
    1,162
    
    
    $
    39
    
    
    $
    1,214
    
    
    
    10.3
    %
    
    
    2.9
    %Alt-A (included above)Fair Value
    
    $
    
    
    
    $
    1,142
    
    
    $
    3
    
    
    $
    51
    
    
    $
    1,196
    
    
    
    10.5
    %
    
    
    2.9
    %Amortized Cost
    
    $
    
    
    
    $
    1,187
    
    
    $
    3
    
    
    $
    52
    
    
    $
    1,242
    
    
    
    10.5
    %
    
    
    3.0
    %
   52




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##### Table of Contents



Short Term Investments
  Short Term Investments
 December 31
    
    2007
    
    
    2006(In millions)Short term investments available-for-sale:Commercial paper
    
    $
    3,040
    
    
    $
    923U.S. Treasury securities
    
    
    577
    
    
    
    1,093Money market funds
    
    
    72
    
    
    
    196Other, including collateral held related to securities lending
    
    
    808
    
    
    
    3,326Total short term investments available-for-sale
    
    
    4,497
    
    
    
    5,538Short term investments trading:Commercial paper
    
    
    35
    
    
    
    43U.S. Treasury securities
    
    
    
    
    
    
    2Money market funds
    
    
    139
    
    
    
    127Other
    
    
    6
    
    
    
    Total short term investments trading
    
    
    180
    
    
    
    172Total short term investments
    
    $
    4,677
    
    
    $
    5,710
  53




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##### Table of Contents



LIQUIDITY AND CAPITAL RESOURCES
 Cash Flows
          54




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##### Table of Contents



Commitments, Contingencies, and Guarantees
   Contractual Commitments
 December 31, 2007
    
    Total
    
    
    Less than 1 year
    
    
    1-3 years
    
    
    3-5 years
    
    
    More than 5 years(In millions)Debt (a)
    
    $
    3,175
    
    
    $
    486
    
    
    $
    235
    
    
    $
    680
    
    
    $
    1,774Lease obligations
    
    
    247
    
    
    
    44
    
    
    
    79
    
    
    
    63
    
    
    
    61Claim and claim expense reserves (b)
    
    
    30,259
    
    
    
    6,733
    
    
    
    9,194
    
    
    
    4,767
    
    
    
    9,565Future policy benefits reserves (c)
    
    
    11,388
    
    
    
    180
    
    
    
    346
    
    
    
    332
    
    
    
    10,530Policyholder funds reserves (c)
    
    
    882
    
    
    
    436
    
    
    
    342
    
    
    
    3
    
    
    
    101Guaranteed payment contracts (d)
    
    
    31
    
    
    
    14
    
    
    
    17
    
    
    
    
    
    
    
    Total
    
    $
    45,982
    
    
    $
    7,893
    
    
    $
    10,213
    
    
    $
    5,845
    
    
    $
    22,031
 
 (a)
    
    Includes estimated future interest payments, but does not include original issue discount.(b)
    
    Claim and claim adjustment expense reserves are not discounted and represent our estimate of
the amount and timing of the ultimate settlement and administration of claims based on our
assessment of facts and circumstances known as of December 31, 2007. See the Reserves 
Estimates and Uncertainties section of this MD&A for further information. Claim and claim
adjustment expense reserves of $16 million related to business which has been 100% ceded to
unaffiliated parties in connection with the individual life sale are not included.(c)
    
    Future policy benefits and policyholder funds reserves are not discounted and represent our
estimate of the ultimate amount and timing of the settlement of benefits based on our
assessment of facts and circumstances known as of December 31, 2007. Future policy benefit
reserves of $843 million and policyholder fund reserves of $42 million related to business
which has been 100% ceded to unaffiliated parties in connection with the individual life sale
are not included. Additional information on future policy benefits and policyholder funds
reserves is included in Note A of the Consolidated Financial Statements included under Item 8.(d)
    
    Primarily relating to telecommunications and software services.  Off-Balance Sheet Arrangements
    55




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##### Table of Contents



Dividends
    Share Repurchase Program
  Regulatory Matters
    Ratings
  56




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##### Table of Contents



Insurance Financial StrengthRatings
    
    Debt RatingsProperty &Casualty
    
    Life
    
    CNAF
    
    ContinentalCCC
    
    CAC
    
    Senior
    
    SeniorGroup
    
    
    
    Debt
    
    DebtA.M. Best
    
    A
    
    A-
    
    bbb
    
    Not ratedFitch
    
    A
    
    Not rated
    
    BBB
    
    BBBMoodys
    
    A3
    
    Not rated
    
    Baa3
    
    Baa3S&P
    
    A-
    
    BBB+
    
    BBB-
    
    BBB-
  
    
    On October 5, 2007, Fitch Ratings upgraded the senior debt ratings of CNAF and
Continental to BBB, the financial strength ratings of CNAs property/casualty insurance
subsidiaries to A and withdrew the A- insurance financial strength rating of Continental
Assurance Company (CAC).
    
    On November 2, 2007, Moodys affirmed CNAs ratings and stable outlook.
    
    On December 18, 2007, A.M. Best affirmed CNAs ratings and stable outlook.
    Accounting Pronouncements
 Statement of Financial Accounting Standard (SFAS) No. 157, Fair Value Measurements (SFAS
157)
  SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities (SFAS
159)
  57




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##### Table of Contents



, Disclosures about Fair Value of Financial Instruments .
 SFAS No.160, Noncontrolling Interests in Consolidated Financial Statements an amendment of ARB
No. 51 (SFAS 160)
   FORWARD-LOOKING STATEMENTS
  
    
    general economic and business conditions, including inflationary pressures on medical care
costs, construction costs and other economic sectors that increase the severity of claims;
    
    changes in financial markets such as fluctuations in interest rates, long term periods of
low interest rates, credit conditions and currency, commodity and stock prices, including the
short and long term effects of losses produced or threatened in relation to sub-prime
residential mortgage-backed securities (sub-prime);
    
    the effects of corporate bankruptcies and accounting errors on capital markets, and on the
markets for D&O and E&O coverages;
    
    changes in foreign or domestic political, social and economic conditions;
 58




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##### Table of Contents




    
    regulatory initiatives and compliance with governmental regulations, judicial decisions,
including interpretation of policy provisions, decisions regarding coverage and theories of
liability, trends in litigation and the outcome of any litigation involving us, and rulings
and changes in tax laws and regulations;
    
    effects upon insurance markets and upon industry business practices and relationships of
current litigation, investigations and regulatory activity by the New York State Attorney
Generals office and other authorities concerning contingent commission arrangements with
brokers and bid solicitation activities;
    
    legal and regulatory activities with respect to certain non-traditional and finite-risk
insurance products, and possible resulting changes in accounting and financial reporting in
relation to such products, including our restatement of financial results in May of 2005 and
our relationship with an affiliate, Accord Re Ltd., as disclosed in connection with that
restatement;
    
    regulatory limitations, impositions and restrictions upon us, including the effects of
assessments and other surcharges for guaranty funds and second-injury funds and other
mandatory pooling arrangements;
    
    the impact of competitive products, policies and pricing and the competitive environment in
which we operate, including changes in our book of business;
    
    product and policy availability and demand and market responses, including the level of
ability to obtain rate increases and decline or non-renew under priced accounts, to achieve
premium targets and profitability and to realize growth and retention estimates;
    
    development of claims and the impact on loss reserves, including changes in claim
settlement policies;
    
    the effectiveness of current initiatives by claims management to reduce loss and expense
ratios through more efficacious claims handling techniques;
    
    the performance of reinsurance companies under reinsurance contracts with us;
    
    results of financing efforts, including the availability of bank credit facilities;
    
    changes in our composition of operating segments;
    
    weather and other natural physical events, including the severity and frequency of storms,
hail, snowfall and other winter conditions, natural disasters such as hurricanes and
earthquakes, as well as climate change, including effects on weather patterns, greenhouse
gases, sea, land and air temperatures, sea levels, rain and snow;
    
    regulatory requirements imposed by coastal state regulators in the wake of hurricanes or
other natural disasters, including limitations on the ability to exit markets or to non-renew,
cancel or change terms and conditions in policies, as well as mandatory assessments to fund
any shortfalls arising from the inability of quasi-governmental insurers to pay claims;
    
    man-made disasters, including the possible occurrence of terrorist attacks and the effect
of the absence or insufficiency of applicable terrorism legislation on coverages;
    
    the unpredictability of the nature, targets, severity or frequency of potential terrorist
events, as well as the uncertainty as to our ability to contain our terrorism exposure
effectively, notwithstanding the extension through December 31, 2014 of the Terrorism Risk
Insurance Act of 2002;
    
    the occurrence of epidemics;
    
    exposure to liabilities due to claims made by insureds and others relating to asbestos
remediation and health-based asbestos impairments, as well as exposure to liabilities for
environmental pollution, construction defect claims and exposure to liabilities due to claims
made by insureds and others relating to lead-based paint and other mass torts;
    
    whether a national privately financed trust to replace litigation of asbestos claims with
payments to claimants from the trust will be established or approved through federal
legislation, or, if established
 59




---



##### Table of Contents



and approved, whether it will contain funding requirements in excess of our established
loss reserves or carried loss reserves;
    
    the sufficiency of our loss reserves and the possibility of future increases in reserves;
    
    regulatory limitations and restrictions, including limitations upon our ability to receive
dividends from our insurance subsidiaries imposed by state regulatory agencies and minimum
risk-based capital standards established by the National Association of Insurance
Commissioners;
    
    the risks and uncertainties associated with our loss reserves as outlined in the Critical
Accounting Estimates and the Reserves  Estimates and Uncertainties sections of this MD&A;
    
    the level of success in integrating acquired businesses and operations, and in
consolidating, or selling existing ones;
    
    the possibility of changes in our ratings by ratings agencies, including the inability to
access certain markets or distribution channels and the required collateralization of future
payment obligations as a result of such changes, and changes in rating agency policies and
practices; and
    
    the actual closing of contemplated transactions and agreements.
  60




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##### Table of Contents



ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
   Sensitivity Analysis
      61




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##### Table of Contents



Market Risk Scenario 1
 Increase (Decrease)Market
    
    
    Interest
    
    
    Currency
    
    
    EquityDecember 31, 2007
    
    Value
    
    
    Rate Risk
    
    
    Risk
    
    
    Risk(In millions)General account:Fixed maturity securities available-for-sale
    
    $
    34,080
    
    
    $
    (1,900
    )
    
    $
    (111
    )
    
    $
    (42
    )Fixed maturity securities trading
    
    
    177
    
    
    
    (2
    )
    
    
    (1
    )
    
    
    (1
    )Equity securities available-for-sale
    
    
    568
    
    
    
    
    
    
    
    (1
    )
    
    
    (57
    )Short term investments available-for-sale
    
    
    4,497
    
    
    
    (4
    )
    
    
    (42
    )
    
    
    Short term investments trading
    
    
    180
    
    
    
    
    
    
    
    
    
    
    
    Limited partnerships
    
    
    2,214
    
    
    
    1
    
    
    
    
    
    
    
    (43
    )Other invested assets
    
    
    7
    
    
    
    
    
    
    
    
    
    
    
    Interest rate swaps
    
    
    36
    
    
    
    33
    
    
    
    
    
    
    
    Equity index futures trading
    
    
    
    
    
    
    1
    
    
    
    
    
    
    
    (69
    )Other derivative securities
    
    
    3
    
    
    
    (3
    )
    
    
    8
    
    
    
    Total general account
    
    
    41,762
    
    
    
    (1,874
    )
    
    
    (147
    )
    
    
    (212
    )Separate accounts:Fixed maturity securities
    
    
    419
    
    
    
    (20
    )
    
    
    
    
    
    
    Equity securities
    
    
    45
    
    
    
    
    
    
    
    
    
    
    
    (5
    )Short term investments
    
    
    6
    
    
    
    
    
    
    
    
    
    
    
    Total separate accounts
    
    
    470
    
    
    
    (20
    )
    
    
    
    
    
    
    (5
    )Total securities
    
    $
    42,232
    
    
    $
    (1,894
    )
    
    $
    (147
    )
    
    $
    (217
    )Debt (carrying value)
    
    $
    2,157
    
    
    $
    (107
    )
    
    $
    
    
    
    $
    
 62




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##### Table of Contents



Market Risk Scenario 1
 Increase (Decrease)Market
    
    
    Interest
    
    
    Currency
    
    
    EquityDecember 31, 2006
    
    Value
    
    
    Rate Risk
    
    
    Risk
    
    
    Risk(In millions)General account:Fixed maturity securities available-for-sale
    
    $
    35,647
    
    
    $
    (1,959
    )
    
    $
    (98
    )
    
    $
    (91
    )Fixed maturity securities trading
    
    
    204
    
    
    
    (2
    )
    
    
    
    
    
    
    (2
    )Equity securities available-for-sale
    
    
    597
    
    
    
    
    
    
    
    (9
    )
    
    
    (60
    )Equity securities trading
    
    
    60
    
    
    
    
    
    
    
    
    
    
    
    (6
    )Short term investments available-for-sale
    
    
    5,538
    
    
    
    (5
    )
    
    
    (32
    )
    
    
    Short term investments trading
    
    
    172
    
    
    
    
    
    
    
    
    
    
    
    Limited partnerships
    
    
    1,852
    
    
    
    1
    
    
    
    
    
    
    
    (37
    )Other invested assets
    
    
    23
    
    
    
    
    
    
    
    
    
    
    
    Interest rate swaps
    
    
    1
    
    
    
    190
    
    
    
    
    
    
    
    Equity index futures trading
    
    
    
    
    
    
    1
    
    
    
    
    
    
    
    (65
    )Other derivative securities
    
    
    2
    
    
    
    1
    
    
    
    (2
    )
    
    
    Total general account
    
    
    44,096
    
    
    
    (1,773
    )
    
    
    (141
    )
    
    
    (261
    )Separate accounts:Fixed maturity securities
    
    
    434
    
    
    
    (21
    )
    
    
    
    
    
    
    Equity securities
    
    
    41
    
    
    
    
    
    
    
    
    
    
    
    (4
    )Short term investments
    
    
    21
    
    
    
    
    
    
    
    
    
    
    
    Total separate accounts
    
    
    496
    
    
    
    (21
    )
    
    
    
    
    
    
    (4
    )Total securities
    
    $
    44,592
    
    
    $
    (1,794
    )
    
    $
    (141
    )
    
    $
    (265
    )Debt (carrying value)
    
    $
    2,156
    
    
    $
    (122
    )
    
    $
    
    
    
    $
    
 63




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##### Table of Contents



Market Risk Scenario 2
 Increase (Decrease)Market
    
    
    Interest
    
    
    Currency
    
    
    EquityDecember 31, 2007
    
    Value
    
    
    Rate Risk
    
    
    Risk
    
    
    Risk(In millions)General account:Fixed maturity securities available-for-sale
    
    $
    34,080
    
    
    $
    (2,789
    )
    
    $
    (221
    )
    
    $
    (106
    )Fixed maturity securities trading
    
    
    177
    
    
    
    (3
    )
    
    
    (1
    )
    
    
    (3
    )Equity securities available-for-sale
    
    
    568
    
    
    
    
    
    
    
    (2
    )
    
    
    (142
    )Short term investments available-for-sale
    
    
    4,497
    
    
    
    (6
    )
    
    
    (85
    )
    
    
    Short term investments trading
    
    
    180
    
    
    
    
    
    
    
    
    
    
    
    Limited partnerships
    
    
    2,214
    
    
    
    1
    
    
    
    
    
    
    
    (109
    )Other invested assets
    
    
    7
    
    
    
    
    
    
    
    
    
    
    
    Interest rate swaps
    
    
    36
    
    
    
    48
    
    
    
    
    
    
    
    Equity index futures trading
    
    
    
    
    
    
    2
    
    
    
    
    
    
    
    (171
    )Other derivative securities
    
    
    3
    
    
    
    
    
    
    
    (8
    )
    
    
    Total general account
    
    
    41,762
    
    
    
    (2,747
    )
    
    
    (317
    )
    
    
    (531
    )Separate accounts:Fixed maturity securities
    
    
    419
    
    
    
    (30
    )
    
    
    
    
    
    
    Equity securities
    
    
    45
    
    
    
    
    
    
    
    
    
    
    
    (11
    )Short term investments
    
    
    6
    
    
    
    
    
    
    
    
    
    
    
    Total separate accounts
    
    
    470
    
    
    
    (30
    )
    
    
    
    
    
    
    (11
    )Total securities
    
    $
    42,232
    
    
    $
    (2,777
    )
    
    $
    (317
    )
    
    $
    (542
    )Debt (carrying value)
    
    $
    2,157
    
    
    $
    (156
    )
    
    $
    
    
    
    $
    
 64




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##### Table of Contents



Market Risk Scenario 2
 Increase (Decrease)Market
    
    
    Interest
    
    
    Currency
    
    
    EquityDecember 31, 2006
    
    Value
    
    
    Rate Risk
    
    
    Risk
    
    
    Risk(In millions)General account:Fixed maturity securities available-for-sale
    
    $
    35,647
    
    
    $
    (2,925
    )
    
    $
    (197
    )
    
    $
    (227
    )Fixed maturity securities trading
    
    
    204
    
    
    
    (3
    )
    
    
    
    
    
    
    (5
    )Equity securities available-for-sale
    
    
    597
    
    
    
    
    
    
    
    (18
    )
    
    
    (149
    )Equity securities trading
    
    
    60
    
    
    
    
    
    
    
    
    
    
    
    (15
    )Short term investments available-for-sale
    
    
    5,538
    
    
    
    (7
    )
    
    
    (64
    )
    
    
    Short term investments trading
    
    
    172
    
    
    
    
    
    
    
    
    
    
    
    Limited partnerships
    
    
    1,852
    
    
    
    1
    
    
    
    
    
    
    
    (93
    )Other invested assets
    
    
    23
    
    
    
    
    
    
    
    
    
    
    
    Interest rate swaps
    
    
    1
    
    
    
    279
    
    
    
    
    
    
    
    Equity index futures trading
    
    
    
    
    
    
    2
    
    
    
    
    
    
    
    (162
    )Other derivative securities
    
    
    2
    
    
    
    1
    
    
    
    (4
    )
    
    
    (1
    )Total general account
    
    
    44,096
    
    
    
    (2,652
    )
    
    
    (283
    )
    
    
    (652
    )Separate accounts:Fixed maturity securities
    
    
    434
    
    
    
    (31
    )
    
    
    
    
    
    
    Equity securities
    
    
    41
    
    
    
    
    
    
    
    
    
    
    
    (10
    )Short term investments
    
    
    21
    
    
    
    
    
    
    
    
    
    
    
    Total separate accounts
    
    
    496
    
    
    
    (31
    )
    
    
    
    
    
    
    (10
    )Total securities
    
    $
    44,592
    
    
    $
    (2,683
    )
    
    $
    (283
    )
    
    $
    (662
    )Debt (carrying value)
    
    $
    2,156
    
    
    $
    (180
    )
    
    $
    
    
    
    $
    
 65




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##### Table of Contents



ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
 CNA Financial Corporation
Consolidated Statements of Operations
 Years ended December 31
    
    2007
    
    
    2006
    
    
    2005(In millions, except per share data)RevenuesNet earned premiums
    
    $
    7,484
    
    
    $
    7,603
    
    
    $
    7,569Net investment income
    
    
    2,433
    
    
    
    2,412
    
    
    
    1,892Realized investment gains (losses), net of participating
policyholders and minority interests
    
    
    (311
    )
    
    
    86
    
    
    
    (10
    )Other revenues
    
    
    279
    
    
    
    275
    
    
    
    411Total revenues
    
    
    9,885
    
    
    
    10,376
    
    
    
    9,862Claims, Benefits and ExpensesInsurance claims and policyholders benefits
    
    
    6,009
    
    
    
    6,047
    
    
    
    6,999Amortization of deferred acquisition costs
    
    
    1,520
    
    
    
    1,534
    
    
    
    1,543Other operating expenses
    
    
    994
    
    
    
    1,027
    
    
    
    1,034Restructuring and other related charges
    
    
    
    
    
    
    (13
    )
    
    
    Interest
    
    
    140
    
    
    
    131
    
    
    
    124Total claims, benefits and expenses
    
    
    8,663
    
    
    
    8,726
    
    
    
    9,700Income before income tax and minority interest
    
    
    1,222
    
    
    
    1,650
    
    
    
    162Income tax (expense) benefit
    
    
    (317
    )
    
    
    (469
    )
    
    
    105Minority interest
    
    
    (48
    )
    
    
    (44
    )
    
    
    (24
    )Income from continuing operations
    
    
    857
    
    
    
    1,137
    
    
    
    243Income (loss) from discontinued operations, net of income
tax (expense) benefit of $0, $7 and $(2)
    
    
    (6
    )
    
    
    (29
    )
    
    
    21Net Income
    
    $
    851
    
    
    $
    1,108
    
    
    $
    264Basic Earnings Per ShareIncome from continuing operations
    
    $
    3.15
    
    
    $
    4.17
    
    
    $
    0.68Income (loss) from discontinued operations
    
    
    (0.02
    )
    
    
    (0.11
    )
    
    
    0.08Basic earnings per share available to common stockholders
    
    $
    3.13
    
    
    $
    4.06
    
    
    $
    0.76Diluted Earnings Per ShareIncome from continuing operations
    
    $
    3.15
    
    
    $
    4.16
    
    
    $
    0.68Income (loss) from discontinued operations
    
    
    (0.02
    )
    
    
    (0.11
    )
    
    
    0.08Diluted earnings per share available to common stockholders
    
    $
    3.13
    
    
    $
    4.05
    
    
    $
    0.76Weighted Average Outstanding Common Stock and Common Stock
EquivalentsBasic
    
    
    271.5
    
    
    
    262.1
    
    
    
    256.0Diluted
    
    
    271.8
    
    
    
    262.3
    
    
    
    256.0
  66




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##### Table of Contents



CNA Financial Corporation  Consolidated Balance Sheets
 December 31
    
    2007
    
    
    2006(In millions, except share data)AssetsInvestments:Fixed maturity securities at fair value (amortized cost of $34,388 and $35,135)
    
    $
    34,257
    
    
    $
    35,851Equity securities at fair value (cost of $366 and $408)
    
    
    568
    
    
    
    657Limited partnership investments
    
    
    2,214
    
    
    
    1,852Other invested assets
    
    
    46
    
    
    
    26Short term investments
    
    
    4,677
    
    
    
    5,710Total investments
    
    
    41,762
    
    
    
    44,096Cash
    
    
    94
    
    
    
    84Reinsurance receivables (less allowance for uncollectible receivables of $461 and $469)
    
    
    8,228
    
    
    
    9,478Insurance receivables (less allowance for doubtful accounts of $312 and $368)
    
    
    1,972
    
    
    
    2,108Accrued investment income
    
    
    330
    
    
    
    313Receivables for securities sold and collateral
    
    
    142
    
    
    
    303Deferred acquisition costs
    
    
    1,161
    
    
    
    1,190Prepaid reinsurance premiums
    
    
    270
    
    
    
    342Deferred income taxes
    
    
    1,198
    
    
    
    855Property and equipment at cost (less accumulated depreciation of $596 and $571)
    
    
    378
    
    
    
    277Goodwill and other intangible assets
    
    
    142
    
    
    
    142Other assets
    
    
    579
    
    
    
    592Separate account business
    
    
    476
    
    
    
    503Total assets
    
    $
    56,732
    
    
    $
    60,283Liabilities and Stockholders EquityLiabilities:Insurance reserves:Claim and claim adjustment expenses
    
    $
    28,588
    
    
    $
    29,636Unearned premiums
    
    
    3,598
    
    
    
    3,784Future policy benefits
    
    
    7,106
    
    
    
    6,645Policyholders funds
    
    
    930
    
    
    
    1,015Collateral on loaned securities and derivatives
    
    
    63
    
    
    
    2,851Payables for securities purchased
    
    
    353
    
    
    
    221Participating policyholders funds
    
    
    45
    
    
    
    50Short term debt
    
    
    350
    
    
    
    Long term debt
    
    
    1,807
    
    
    
    2,156Federal income taxes payable (includes $5 and $38 due to Loews Corporation)
    
    
    2
    
    
    
    40Reinsurance balances payable
    
    
    401
    
    
    
    539Other liabilities
    
    
    2,478
    
    
    
    2,740Separate account business
    
    
    476
    
    
    
    503Total liabilities
    
    
    46,197
    
    
    
    50,180Commitments and contingencies (Notes B, F, G, I and K)Minority interest
    
    
    385
    
    
    
    335Stockholders equity:Common stock ($2.50 par value; 500,000,000 shares authorized; 273,040,243 shares
issued; and 271,662,278 and 271,108,480 shares outstanding)
    
    
    683
    
    
    
    683Additional paid-in capital
    
    
    2,169
    
    
    
    2,166Retained earnings
    
    
    7,285
    
    
    
    6,486Accumulated other comprehensive income
    
    
    103
    
    
    
    549Treasury stock (1,377,965 and 1,931,763 shares), at cost
    
    
    (39
    )
    
    
    (58
    )10,201
    
    
    
    9,826Notes receivable for the issuance of common stock
    
    
    (51
    )
    
    
    (58
    )Total stockholders equity
    
    
    10,150
    
    
    
    9,768Total liabilities and stockholders equity
    
    $
    56,732
    
    
    $
    60,283
  67




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##### Table of Contents



CNA Financial Corporation  Consolidated Statements of Cash Flows
 Years ended December 31
    
    2007
    
    
    2006
    
    
    2005(In millions)Cash Flows from Operating Activities:Net income
    
    $
    851
    
    
    $
    1,108
    
    
    $
    264Adjustments to reconcile net income to net cash
flows provided by operating activities:(Income) loss from discontinued operations
    
    
    6
    
    
    
    29
    
    
    
    (21
    )Loss (gain) on disposal of property and equipment
    
    
    1
    
    
    
    
    
    
    
    (1
    )Minority interest
    
    
    48
    
    
    
    44
    
    
    
    24Deferred income tax provision
    
    
    (99
    )
    
    
    173
    
    
    
    (220
    )Trading securities activity
    
    
    (12
    )
    
    
    374
    
    
    
    164Realized investment (gains) losses, net of
participating policyholders and minority
interests
    
    
    311
    
    
    
    (86
    )
    
    
    10Undistributed earnings of equity method investees
    
    
    (99
    )
    
    
    (170
    )
    
    
    (45
    )Net amortization of bond (discount) premium
    
    
    (252
    )
    
    
    (274
    )
    
    
    (153
    )Depreciation
    
    
    64
    
    
    
    48
    
    
    
    54Changes in:Receivables, net
    
    
    1,386
    
    
    
    2,427
    
    
    
    3,531Accrued investment income
    
    
    (17
    )
    
    
    (1
    )
    
    
    (15
    )Deferred acquisition costs
    
    
    29
    
    
    
    7
    
    
    
    71Prepaid reinsurance premiums
    
    
    72
    
    
    
    (2
    )
    
    
    788Federal income taxes recoverable/payable
    
    
    (38
    )
    
    
    102
    
    
    
    (62
    )Insurance reserves
    
    
    (830
    )
    
    
    (771
    )
    
    
    (943
    )Reinsurance balances payable
    
    
    (138
    )
    
    
    (1,097
    )
    
    
    (1,344
    )Other assets
    
    
    42
    
    
    
    142
    
    
    
    (16
    )Other liabilities
    
    
    (80
    )
    
    
    306
    
    
    
    55Other, net
    
    
    7
    
    
    
    (98
    )
    
    
    75Total adjustments
    
    
    401
    
    
    
    1,153
    
    
    
    1,952Net cash flows provided by operating
activities-continuing operations
    
    $
    1,252
    
    
    $
    2,261
    
    
    $
    2,216Net cash flows used by operating
activities-discontinued operations
    
    $
    (13
    )
    
    $
    (11
    )
    
    $
    (47
    )Net cash flows provided by operating activities-total
    
    $
    1,239
    
    
    $
    2,250
    
    
    $
    2,169Cash Flows from Investing Activities:Purchases of fixed maturity securities
    
    $
    (73,157
    )
    
    $
    (48,757
    )
    
    $
    (62,990
    )Proceeds from fixed maturity securities:Sales
    
    
    69,012
    
    
    
    42,433
    
    
    
    55,611Maturities, calls and redemptions
    
    
    4,744
    
    
    
    4,310
    
    
    
    4,579Purchases of equity securities
    
    
    (236
    )
    
    
    (340
    )
    
    
    (482
    )Proceeds from sales of equity securities
    
    
    340
    
    
    
    221
    
    
    
    316Change in short term investments
    
    
    1,347
    
    
    
    (1,331
    )
    
    
    1,627Change in collateral on loaned securities
    
    
    (2,788
    )
    
    
    2,084
    
    
    
    (151
    )Change in other investments
    
    
    (168
    )
    
    
    (195
    )
    
    
    86Purchases of property and equipment
    
    
    (160
    )
    
    
    (131
    )
    
    
    (45
    )Dispositions
    
    
    14
    
    
    
    8
    
    
    
    57Other, net
    
    
    (69
    )
    
    
    16
    
    
    
    56Net cash flows used by investing
activities-continuing operations
    
    $
    (1,121
    )
    
    $
    (1,682
    )
    
    $
    (1,336
    )Net cash flows provided by investing
activities-discontinued operations, including
proceeds from disposition
    
    $
    39
    
    
    $
    36
    
    
    $
    20Net cash flows used by investing activities-total
    
    $
    (1,082
    )
    
    $
    (1,646
    )
    
    $
    (1,316
    )
  68




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##### Table of Contents



2007
    
    
    2006
    
    
    2005Cash Flows from Financing Activities:Dividends paid to stockholders
    
    $
    (95
    )
    
    $
    
    
    
    $
    Proceeds from the issuance of long term debt
    
    
    
    
    
    
    759
    
    
    
    Principal payments on debt
    
    
    
    
    
    
    (294
    )
    
    
    (568
    )Return of investment contract account balances
    
    
    (122
    )
    
    
    (589
    )
    
    
    (281
    )Receipts of investment contract account balances
    
    
    3
    
    
    
    4
    
    
    
    7Payment to repurchase Series H Issue preferred stock
    
    
    
    
    
    
    (993
    )
    
    
    Proceeds from the issuance of common stock
    
    
    
    
    
    
    499
    
    
    
    Stock options exercised
    
    
    18
    
    
    
    10
    
    
    
    2Other, net
    
    
    11
    
    
    
    (1
    )
    
    
    3Net cash flows used by financing
activities-continuing operations
    
    $
    (185
    )
    
    $
    (605
    )
    
    $
    (837
    )Net cash flows provided by financing
activities-discontinued operations
    
    $
    
    
    
    $
    
    
    
    $
    Net cash flows used by financing activities-total
    
    $
    (185
    )
    
    $
    (605
    )
    
    $
    (837
    )Effect of foreign exchange rate changes on
cash-continuing operations
    
    
    5
    
    
    
    
    
    
    
    Net change in cash
    
    
    (23
    )
    
    
    (1
    )
    
    
    16Net cash transactions from continuing operations to
discontinued operations
    
    
    59
    
    
    
    14
    
    
    
    (42
    )Net cash transactions from discontinued operations to
continuing operations
    
    
    (59
    )
    
    
    (14
    )
    
    
    42Cash, beginning of year
    
    
    124
    
    
    
    125
    
    
    
    109Cash, end of year
    
    $
    101
    
    
    $
    124
    
    
    $
    125Cash-continuing operations
    
    $
    94
    
    
    $
    84
    
    
    $
    96Cash-discontinued operations
    
    
    7
    
    
    
    40
    
    
    
    29Cash-total
    
    $
    101
    
    
    $
    124
    
    
    $
    125
  69




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##### Table of Contents



CNA Financial Corporation  Consolidated Statements of Stockholders Equity
 Years ended December 31
    
    2007
    
    
    2006
    
    
    2005(In millions)Preferred StockBalance, beginning of period
    
    $
    
    
    
    $
    750
    
    
    $
    750Repurchase of Series H Issue
    
    
    
    
    
    
    (750
    )
    
    
    Balance, end of period
    
    
    
    
    
    
    
    
    
    
    750Common StockBalance, beginning of period
    
    
    683
    
    
    
    645
    
    
    
    645Issuance of common stock
    
    
    
    
    
    
    38
    
    
    
    Balance, end of period
    
    
    683
    
    
    
    683
    
    
    
    645Additional Paid-in CapitalBalance, beginning of period
    
    
    2,166
    
    
    
    1,701
    
    
    
    1,701Issuance of common stock and other
    
    
    3
    
    
    
    465
    
    
    
    Balance, end of period
    
    
    2,169
    
    
    
    2,166
    
    
    
    1,701Retained EarningsBalance, beginning of period
    
    
    6,486
    
    
    
    5,621
    
    
    
    5,357Adjustment
to initially apply FSP 85-4-1, net of tax
    
    
    38
    
    
    
    
    
    
    
    Adjustment to initially apply FIN 48
    
    
    5
    
    
    
    
    
    
    
    Adjusted balance, beginning of period
    
    
    6,529
    
    
    
    5,621
    
    
    
    5,357Dividends paid to stockholders
    
    
    (95
    )
    
    
    
    
    
    
    Liquidation preference in excess of par value on Series H Issue
    
    
    
    
    
    
    (243
    )
    
    
    Net income
    
    
    851
    
    
    
    1,108
    
    
    
    264Balance, end of period
    
    
    7,285
    
    
    
    6,486
    
    
    
    5,621Accumulated Other Comprehensive Income (Loss)Balance, beginning of period
    
    
    549
    
    
    
    359
    
    
    
    661Other comprehensive income (loss)
    
    
    (446
    )
    
    
    236
    
    
    
    (302
    )Adjustment to initially apply SFAS 158, net of tax
    
    
    
    
    
    
    (46
    )
    
    
    Balance, end of period
    
    
    103
    
    
    
    549
    
    
    
    359Treasury StockBalance, beginning of period
    
    
    (58
    )
    
    
    (67
    )
    
    
    (69
    )Stock options exercised
    
    
    19
    
    
    
    9
    
    
    
    2Balance, end of period
    
    
    (39
    )
    
    
    (58
    )
    
    
    (67
    )Notes Receivable for the Issuance of Common StockBalance, beginning of period
    
    
    (58
    )
    
    
    (59
    )
    
    
    (71
    )Decrease in notes receivable for the issuance of common stock
    
    
    7
    
    
    
    1
    
    
    
    12Balance, end of period
    
    
    (51
    )
    
    
    (58
    )
    
    
    (59
    )Total Stockholders Equity
    
    $
    10,150
    
    
    $
    9,768
    
    
    $
    8,950
  70




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##### Table of Contents



Notes to Consolidated Financial Statements
 Note A. Summary of Significant Accounting Policies
 Basis of Presentation
   Business
    Insurance Operations
 Premiums:
   Claim and claim adjustment expense reserves:
 71




---



##### Table of Contents



Future policy benefits reserves:
 Policyholders funds reserves:
 Guaranty fund and other insurance-related assessments:
 Reinsurance:
 72




---



##### Table of Contents



Participating insurance:
 Deferred acquisition costs:
   Investments in life settlement contracts and related revenue recognition:
 Accounting for Life Settlement Contracts by
Third-Party Investors
 73




---



##### Table of Contents



Fair Value of Life Settlement
    
    
    Face Amount of Life InsuranceNumber of Life Settlement
    
    
    Contracts
    
    
    PoliciesDecember 31, 2007
    
    Contracts
    
    
    (In millions)
    
    
    (In millions)Estimated maturity during:2008
    
    
    80
    
    
    $
    16
    
    
    $
    532009
    
    
    80
    
    
    
    14
    
    
    
    522010
    
    
    80
    
    
    
    13
    
    
    
    512011
    
    
    80
    
    
    
    11
    
    
    
    512012
    
    
    80
    
    
    
    10
    
    
    
    51Thereafter
    
    
    1,008
    
    
    
    51
    
    
    
    490Total
    
    
    1,408
    
    
    $
    115
    
    
    $
    748
   Separate Account Business
  74




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##### Table of Contents



Investments
 Valuation of investments:
  Consolidation of Variable Interest Entities, an
Interpretation of ARB No. 51
    Realized investment gains and losses:
 Securities lending activities:
  Derivative Financial Instruments
  75




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##### Table of Contents



Nature of Hedge Designation
    
    Derivatives Change in Fair Value Reflected In:No hedge designation
    
    Realized investment gains or lossesFair value designation
    
    Realized investment gains or losses, along
with the change in fair value of the hedged
asset or liability that is attributable to the
hedged riskCash flow designation
    
    Other comprehensive income, with subsequent
reclassification to earnings when the hedged
transaction, asset or liability impacts
earningsForeign currency designation
    
    Consistent with fair value or cash flow above,
depending on the nature of the hedging
relationship
      76




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##### Table of Contents



Income Taxes
  77




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##### Table of Contents



Pension and Postretirement Benefits
 Employers Accounting for Defined Benefit Pension and Other
Postretirement Plans (an amendment of FASB Statements No. 87,
88, 106 and 132(R))
 Stock-Based Compensation
 Share-Based Payment Accounting for Stock Issued to Employees
 Foreign Currency
  Property and Equipment
  Goodwill and Other Intangible Assets
  Earnings per Share Data
  78




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##### Table of Contents



79




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##### Table of Contents



Earnings Per Share
 Years ended December 31
    
    2007
    
    
    2006
    
    
    2005(In millions, except per share amounts)Income from continuing operations
    
    $
    857
    
    
    $
    1,137
    
    
    $
    243Less: undeclared preferred stock dividend through repurchase date
    
    
    
    
    
    
    (46
    )
    
    
    (70
    )Income from continuing operations available to common stockholders
    
    $
    857
    
    
    $
    1,091
    
    
    $
    173Weighted average outstanding common stock and common stock equivalents
    
    
    271.5
    
    
    
    262.1
    
    
    
    256.0Effect of dilutive securities, employee stock options and appreciation rights
    
    
    0.3
    
    
    
    0.2
    
    
    
    Adjusted weighted average outstanding common stock and common stock
equivalents assuming conversions
    
    
    271.8
    
    
    
    262.3
    
    
    
    256.0Basic earnings per share from continuing operations available
to common stockholders
    
    $
    3.15
    
    
    $
    4.17
    
    
    $
    0.68Diluted earnings per share from continuing operations available
to common stockholders
    
    $
    3.15
    
    
    $
    4.16
    
    
    $
    0.68
 Accounting for Stock-Based
Compensation
 Pro Forma Effect of SFAS 123 on Results
 Year ended December 31
    
    2005(In millions, except per share amounts)Income from continuing operations
    
    $
    243Less: undeclared preferred stock dividend
    
    
    (70
    )Income from continuing operations available to common stockholders
    
    
    173Income from discontinued operations, net of tax
    
    
    21Net income available to common stockholders
    
    
    194Less: Total stock-based compensation cost determined under the fair value method, net of tax
    
    
    (2
    )Pro forma net income available to common stockholders
    
    $
    192Basic and diluted earnings per share, as reported
    
    $
    0.76Basic and diluted earnings per share, pro forma
    
    $
    0.75
 Supplementary Cash Flow Information
  Accounting Pronouncements
 FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes an interpretation of
FASB Statement No. 109 (FIN 48)
  80




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##### Table of Contents



SFAS No. 155, Accounting for Certain Hybrid Financial Instruments an amendment of FASB
Statements No. 133 and 140 (SFAS 155)
 Accounting for
Derivative Instruments and Hedging Activities Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities Application of Statement 133
to Beneficial Interests in Securitized Financial Assets
 SFAS 133 Implementation Issue No. B40, Embedded Derivatives: Application ofParagraph 13(b)to
Securitized Interests in Prepayable Financial Assets (Issue B40)
  Statement of Position 05-1, Accounting by Insurance Enterprises for Deferred Acquisition Costs
in Connection with Modifications or Exchanges of Insurance Contracts (SOP 05-1)
 Accounting and
Reporting by Insurance Enterprises for Certain Long-Duration Contracts and for Realized Gains and
Losses from the Sale of Investments
 81




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##### Table of Contents



Note B. Investments
  Net Investment Income
 Years ended December 31
    
    2007
    
    
    2006
    
    
    2005(In millions)Fixed maturity securities
    
    $
    2,047
    
    
    $
    1,842
    
    
    $
    1,608Short term investments
    
    
    186
    
    
    
    248
    
    
    
    147Limited partnerships
    
    
    183
    
    
    
    288
    
    
    
    254Equity securities
    
    
    25
    
    
    
    23
    
    
    
    25Income from trading portfolio (a)
    
    
    10
    
    
    
    103
    
    
    
    47Interest on funds withheld and other deposits
    
    
    (1
    )
    
    
    (68
    )
    
    
    (166
    )Other
    
    
    36
    
    
    
    18
    
    
    
    20Gross investment income
    
    
    2,486
    
    
    
    2,454
    
    
    
    1,935Investment expenses
    
    
    (53
    )
    
    
    (42
    )
    
    
    (43
    )Net investment income
    
    $
    2,433
    
    
    $
    2,412
    
    
    $
    1,892
 
 (a)
    
    The change in net unrealized losses on trading securities included in net investment income
was $15 million and $7 million for the years ended December 31, 2007 and 2005. There was no
change in net unrealized gains (losses) on trading securities included in net investment
income for the year ended December 31, 2006. 82




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Net Realized Investment Gains (Losses)
 Years ended December 31
    
    2007
    
    
    2006
    
    
    2005(In millions)Net realized investment gains (losses):Fixed maturity securities:Gross realized gains
    
    $
    486
    
    
    $
    382
    
    
    $
    361Gross realized losses
    
    
    (964
    )
    
    
    (377
    )
    
    
    (451
    )Net realized investment gains (losses) on fixed maturity securities
    
    
    (478
    )
    
    
    5
    
    
    
    (90
    )Equity securities:Gross realized gains
    
    
    146
    
    
    
    24
    
    
    
    73Gross realized losses
    
    
    (29
    )
    
    
    (8
    )
    
    
    (35
    )Net realized investment gains on equity securities
    
    
    117
    
    
    
    16
    
    
    
    38Other
    
    
    48
    
    
    
    66
    
    
    
    39Net realized investment gains (losses) before allocation to
participating policyholders and minority interests
    
    
    (313
    )
    
    
    87
    
    
    
    (13
    )Allocated to participating policyholders and minority interests
    
    
    2
    
    
    
    (1
    )
    
    
    3Net realized investment gains (losses)
    
    $
    (311
    )
    
    $
    86
    
    
    $
    (10
    )
  Net Change in Unrealized Appreciation (Depreciation)
 Years ended December 31
    
    2007
    
    
    2006
    
    
    2005(In millions)Net change in unrealized appreciation (depreciation) in general account investments:Fixed maturity securities
    
    $
    (847
    )
    
    $
    98
    
    
    $
    (443
    )Equity securities
    
    
    (47
    )
    
    
    78
    
    
    
    34Other
    
    
    2
    
    
    
    2
    
    
    
    (1
    )Total net change in unrealized appreciation (depreciation) in general account
investments
    
    
    (892
    )
    
    
    178
    
    
    
    (410
    )Net change in unrealized appreciation on other
    
    
    1
    
    
    
    (10
    )
    
    
    (12
    )Allocated to participating policyholders and minority interests
    
    
    3
    
    
    
    4
    
    
    
    18Deferred income tax (expense) benefit
    
    
    315
    
    
    
    (58
    )
    
    
    158Net change in unrealized appreciation (depreciation) in investments
    
    $
    (573
    )
    
    $
    114
    
    
    $
    (246
    )
   83




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##### Table of Contents



Summary of Fixed Maturity and Equity Securities
 Cost or
    
    
    Gross
    
    
    Gross Unrealized Losses
    
    
    EstimatedAmortized
    
    
    Unrealized
    
    
    Less than
    
    
    Greater than
    
    
    FairDecember 31, 2007
    
    Cost
    
    
    Gains
    
    
    12 Months
    
    
    12 Months
    
    
    Value(In millions)Fixed maturity securities available-for-sale:U.S. Treasury securities and obligations of
government agencies
    
    $
    594
    
    
    $
    93
    
    
    $
    
    
    
    $
    
    
    
    $
    687Asset-backed securities
    
    
    11,776
    
    
    
    39
    
    
    
    223
    
    
    
    183
    
    
    
    11,409States, municipalities and political
subdivisions  tax-exempt securities
    
    
    7,615
    
    
    
    144
    
    
    
    82
    
    
    
    2
    
    
    
    7,675Corporate bonds
    
    
    8,867
    
    
    
    246
    
    
    
    149
    
    
    
    12
    
    
    
    8,952Other debt securities
    
    
    4,143
    
    
    
    208
    
    
    
    48
    
    
    
    4
    
    
    
    4,299Redeemable preferred stock
    
    
    1,216
    
    
    
    2
    
    
    
    160
    
    
    
    
    
    
    
    1,058Total fixed maturity securities available-for-sale
    
    
    34,211
    
    
    
    732
    
    
    
    662
    
    
    
    201
    
    
    
    34,080Total fixed maturity securities trading
    
    
    177
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    177Equity securities available-for-sale:Common stock
    
    
    246
    
    
    
    207
    
    
    
    1
    
    
    
    
    
    
    
    452Preferred stock
    
    
    120
    
    
    
    7
    
    
    
    11
    
    
    
    
    
    
    
    116Total equity securities available-for-sale
    
    
    366
    
    
    
    214
    
    
    
    12
    
    
    
    
    
    
    
    568Total
    
    $
    34,754
    
    
    $
    946
    
    
    $
    674
    
    
    $
    201
    
    
    $
    34,825
 Summary of Fixed Maturity and Equity Securities
 Cost or
    
    
    Gross
    
    
    Gross Unrealized Losses
    
    
    EstimatedAmortized
    
    
    Unrealized
    
    
    Less than
    
    
    Greater than
    
    
    FairDecember 31, 2006
    
    Cost
    
    
    Gains
    
    
    12 Months
    
    
    12 Months
    
    
    Value(In millions)Fixed maturity securities available-for-sale:U.S. Treasury securities and obligations of
government agencies
    
    $
    5,056
    
    
    $
    86
    
    
    $
    3
    
    
    $
    1
    
    
    $
    5,138Asset-backed securities
    
    
    13,821
    
    
    
    28
    
    
    
    20
    
    
    
    152
    
    
    
    13,677States, municipalities and political
subdivisions  tax-exempt securities
    
    
    4,915
    
    
    
    237
    
    
    
    1
    
    
    
    5
    
    
    
    5,146Corporate bonds
    
    
    6,811
    
    
    
    338
    
    
    
    8
    
    
    
    9
    
    
    
    7,132Other debt securities
    
    
    3,443
    
    
    
    207
    
    
    
    7
    
    
    
    1
    
    
    
    3,642Redeemable preferred stock
    
    
    885
    
    
    
    28
    
    
    
    1
    
    
    
    
    
    
    
    912Total fixed maturity securities available-for-sale
    
    
    34,931
    
    
    
    924
    
    
    
    40
    
    
    
    168
    
    
    
    35,647Total fixed maturity securities trading
    
    
    204
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    204Equity securities available-for-sale:Common stock
    
    
    214
    
    
    
    239
    
    
    
    1
    
    
    
    
    
    
    
    452Preferred stock
    
    
    134
    
    
    
    11
    
    
    
    
    
    
    
    
    
    
    
    145Total equity securities available-for-sale
    
    
    348
    
    
    
    250
    
    
    
    1
    
    
    
    
    
    
    
    597Total equity securities trading
    
    
    60
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    60Total
    
    $
    35,543
    
    
    $
    1,174
    
    
    $
    41
    
    
    $
    168
    
    
    $
    36,508
 84




---



##### Table of Contents



Unrealized Loss Aging
 December 31, 2007
    
    
    December 31, 2006Gross
    
    
    
    
    
    
    GrossEstimated
    
    
    Unrealized
    
    
    Estimated
    
    
    UnrealizedFair Value
    
    
    Loss
    
    
    Fair Value
    
    
    Loss(In millions)Fixed maturity securities:Investment grade:0-6 months
    
    $
    5,578
    
    
    $
    357
    
    
    $
    9,829
    
    
    $
    247-12 months
    
    
    1,689
    
    
    
    221
    
    
    
    1,267
    
    
    
    1213-24 months
    
    
    690
    
    
    
    57
    
    
    
    5,248
    
    
    
    127Greater than 24 months
    
    
    3,869
    
    
    
    138
    
    
    
    1,022
    
    
    
    41Total investment grade
    
    
    11,826
    
    
    
    773
    
    
    
    17,366
    
    
    
    204Non-investment grade:0-6 months
    
    
    1,549
    
    
    
    76
    
    
    
    509
    
    
    
    27-12 months
    
    
    125
    
    
    
    8
    
    
    
    87
    
    
    
    213-24 months
    
    
    26
    
    
    
    4
    
    
    
    24
    
    
    
    Greater than 24 months
    
    
    8
    
    
    
    2
    
    
    
    2
    
    
    
    Total non-investment grade
    
    
    1,708
    
    
    
    90
    
    
    
    622
    
    
    
    4Total fixed maturity securities
    
    
    13,534
    
    
    
    863
    
    
    
    17,988
    
    
    
    208Equity securities:0-6 months
    
    
    98
    
    
    
    12
    
    
    
    10
    
    
    
    17-12 months
    
    
    1
    
    
    
    
    
    
    
    1
    
    
    
    13-24 months
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Greater than 24 months
    
    
    3
    
    
    
    
    
    
    
    3
    
    
    
    Total equity securities
    
    
    102
    
    
    
    12
    
    
    
    14
    
    
    
    1Total fixed maturity and equity securities
    
    $
    13,636
    
    
    $
    875
    
    
    $
    18,002
    
    
    $
    209
      85




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##### Table of Contents



Asset-Backed
Securities
  Recognition of Interest Income and
Impairment on Purchased and Retained Beneficial Interests in Securitized Financial Assets
   86




---



##### Table of Contents



States,
Municipalities and Political Subdivisions  Tax-Exempt Securities
  Corporate Bonds
   Redeemable Preferred Stock
  87




---



##### Table of Contents



Contractual Maturity
  Contractual Maturity
 December 31, 2007
    
    
    December 31, 2006Cost or
    
    
    Estimated
    
    
    Cost or
    
    
    EstimatedAmortized
    
    
    Fair
    
    
    Amortized
    
    
    FairCost
    
    
    Value
    
    
    Cost
    
    
    Value(In millions)Due in one year or less
    
    $
    2,685
    
    
    $
    2,678
    
    
    $
    1,599
    
    
    $
    1,602Due after one year through five years
    
    
    12,219
    
    
    
    12,002
    
    
    
    13,024
    
    
    
    13,039Due after five years through ten years
    
    
    6,150
    
    
    
    6,052
    
    
    
    9,555
    
    
    
    9,619Due after ten years
    
    
    13,157
    
    
    
    13,348
    
    
    
    10,753
    
    
    
    11,387Total
    
    $
    34,211
    
    
    $
    34,080
    
    
    $
    34,931
    
    
    $
    35,647
  Investment Commitments
    Investments on Deposit
    88




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##### Table of Contents



Note C. Derivative Financial Instruments
  Recognized Gains (Losses)
 Years ended December 31
    
    2007
    
    
    2006
    
    
    2005(In millions)General accountWith hedge designationSwaps
    
    $
    
    
    
    $
    
    
    
    $
    (1
    )Without hedge designationFutures purchased
    
    
    7
    
    
    
    
    
    
    
    Swaps
    
    
    66
    
    
    
    14
    
    
    
    46Futures sold, not yet purchased
    
    
    (38
    )
    
    
    4
    
    
    
    2Currency forwards
    
    
    (4
    )
    
    
    
    
    
    
    2Options embedded in convertible debt securities
    
    
    1
    
    
    
    
    
    
    
    (33
    )Trading activitiesFutures purchased
    
    
    
    
    
    
    65
    
    
    
    18Futures sold, not yet purchased
    
    
    
    
    
    
    
    
    
    
    2Currency forwards
    
    
    
    
    
    
    
    
    
    
    (1
    )Options purchased
    
    
    
    
    
    
    
    
    
    
    (2
    )Options written
    
    
    
    
    
    
    
    
    
    
    2Total
    
    $
    32
    
    
    $
    83
    
    
    $
    35
  Derivative Financial Instruments
 Contractual/
    
    
    EstimatedNotional
    
    
    Fair ValueDecember 31, 2007
    
    Amount
    
    
    Asset (Liability)(In millions)General accountWithout hedge designationSwaps
    
    $
    1,605
    
    
    $
    Equity warrants
    
    
    4
    
    
    
    2Options embedded in convertible debt securities
    
    
    3
    
    
    
    Trading activitiesFutures purchased
    
    
    791
    
    
    
    (4
    )Futures sold, not yet purchased
    
    
    135
    
    
    
    Currency forwards
    
    
    44
    
    
    
    1Total general account
    
    $
    2,582
    
    
    $
    (1
    )
 89




---



##### Table of Contents



Derivative Financial Instruments
 Contractual/
    
    
    EstimatedNotional
    
    
    Fair ValueDecember 31, 2006
    
    Amount
    
    
    Asset (Liability)(In millions)General accountWithout hedge designationSwaps
    
    $
    4,795
    
    
    $
    (30
    )Currency forwards
    
    
    8
    
    
    
    Equity warrants
    
    
    6
    
    
    
    2Options embedded in convertible debt securities
    
    
    9
    
    
    
    Trading activitiesFutures purchased
    
    
    722
    
    
    
    (3
    )Futures sold, not yet purchased
    
    
    79
    
    
    
    Currency forwards
    
    
    25
    
    
    
    Total general account
    
    $
    5,644
    
    
    $
    (31
    )Separate accountsOptions written
    
    $
    1
    
    
    $
    Total separate accounts
    
    $
    1
    
    
    $
    
  Fair Value Hedges
  Derivative Activity Without Hedge Designations
  Trading Activities
  90




---



##### Table of Contents



Separate Accounts
  Note D. Financial Instruments
          91




---



##### Table of Contents



Financial Assets and Liabilities
 2007
    
    2006Carrying
    
    Estimated
    
    Carrying
    
    EstimatedDecember 31
    
    Amount
    
    Fair Value
    
    Amount
    
    Fair Value(In millions)Financial assetsInvestments:Fixed maturity securities
    
    $
    34,257
    
    
    $
    34,257
    
    
    $
    35,851
    
    
    $
    35,851Equity securities
    
    
    568
    
    
    
    568
    
    
    
    657
    
    
    
    657Other invested assets
    
    
    46
    
    
    
    46
    
    
    
    12
    
    
    
    12Separate account business:Fixed maturity securities
    
    
    419
    
    
    
    419
    
    
    
    434
    
    
    
    434Equity securities
    
    
    45
    
    
    
    45
    
    
    
    41
    
    
    
    41Notes receivable for the issuance of common stock
    
    
    51
    
    
    
    51
    
    
    
    58
    
    
    
    56Financial liabilitiesPremium deposits and annuity contracts
    
    $
    826
    
    
    $
    826
    
    
    $
    898
    
    
    $
    899Long term debt
    
    
    1,807
    
    
    
    1,851
    
    
    
    2,156
    
    
    
    2,240Short term debt
    
    
    350
    
    
    
    350
    
    
    
    
    
    
    
    Separate account business
    
    $
    472
    
    
    $
    472
    
    
    $
    500
    
    
    $
    500
 Note E. Income Taxes
      92




---



##### Table of Contents



Reconciliation of Unrecognized Tax Benefits
 Year ended December 31
    
    2007(In millions)Balance at January 1, 2007
    
    $
    3Reductions for tax positions of prior years
    
    
    (2
    )Settlements
    
    
    (1
    )Balance at December 31, 2007
    
    $
    
    Tax Reconciliation
 Years ended December 31
    
    2007
    
    
    2006
    
    
    2005(In millions)Income tax expense at statutory rates
    
    $
    (428
    )
    
    $
    (577
    )
    
    $
    (57
    )Tax benefit from tax exempt income
    
    
    100
    
    
    
    75
    
    
    
    116Other tax benefits, including IRS settlements
    
    
    11
    
    
    
    33
    
    
    
    46Effective income tax (expense) benefit
    
    $
    (317
    )
    
    $
    (469
    )
    
    $
    105
   93




---



##### Table of Contents



Current and Deferred Taxes
 Years ended December 31
    
    2007
    
    
    2006
    
    
    2005(In millions)Current tax expense
    
    $
    (418
    )
    
    $
    (296
    )
    
    $
    (115
    )Tax benefit recognized for FIN 48 uncertainties in the income statement
    
    
    2
    
    
    
    
    
    
    
    Deferred tax (expense) benefit
    
    
    99
    
    
    
    (173
    )
    
    
    220Total income tax (expense) benefit
    
    $
    (317
    )
    
    $
    (469
    )
    
    $
    105
  Components of Net Deferred Tax Asset
 December 31
    
    2007
    
    
    2006(In millions)Deferred Tax Assets:Insurance reserves:Property and casualty claim and claim adjustment expense reserves
    
    $
    771
    
    
    $
    775Unearned premium reserves
    
    
    243
    
    
    
    245Life reserves
    
    
    89
    
    
    
    132Other insurance reserves
    
    
    24
    
    
    
    26Receivables
    
    
    231
    
    
    
    248Employee benefits
    
    
    116
    
    
    
    187Life settlement contracts
    
    
    73
    
    
    
    102Investment valuation differences
    
    
    286
    
    
    
    93Net operating loss carried forward
    
    
    19
    
    
    
    23Other assets
    
    
    199
    
    
    
    171Gross deferred tax assets
    
    
    2,051
    
    
    
    2,002Deferred Tax Liabilities:Deferred acquisition costs
    
    
    635
    
    
    
    648Net unrealized gains
    
    
    25
    
    
    
    340Foreign and other affiliate(s)
    
    
    4
    
    
    
    11Other liabilities
    
    
    189
    
    
    
    148Gross deferred tax liabilities
    
    
    853
    
    
    
    1,147Net deferred tax asset
    
    $
    1,198
    
    
    $
    855
  94




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##### Table of Contents



Note F. Claim and Claim Adjustment Expense Reserves
     95




---



##### Table of Contents



Reconciliation of Claim and Claim Adjustment Expense Reserves
 As of and for the years ended December 31
    
    2007
    
    
    2006
    
    
    2005(In millions)Reserves, beginning of year:Gross
    
    $
    29,636
    
    
    $
    30,938
    
    
    $
    31,523Ceded
    
    
    8,191
    
    
    
    10,605
    
    
    
    13,879Net reserves, beginning of year
    
    
    21,445
    
    
    
    20,333
    
    
    
    17,644Net incurred claim and claim adjustment expenses:Provision for insured events of current year
    
    
    4,939
    
    
    
    4,840
    
    
    
    5,516Increase in provision for insured events of prior years
    
    
    231
    
    
    
    361
    
    
    
    1,100Amortization of discount
    
    
    120
    
    
    
    121
    
    
    
    115Total net incurred (a)
    
    
    5,290
    
    
    
    5,322
    
    
    
    6,731Net payments attributable to:Current year events
    
    
    867
    
    
    
    835
    
    
    
    1,335Prior year events
    
    
    4,447
    
    
    
    3,439
    
    
    
    2,711Reinsurance recoverable against net reserve transferred
under retroactive reinsurance agreements
    
    
    (17
    )
    
    
    (13
    )
    
    
    (10
    )Total net payments (b)
    
    
    5,297
    
    
    
    4,261
    
    
    
    4,036Foreign currency translation adjustment
    
    
    94
    
    
    
    51
    
    
    
    (6
    )Net reserves, end of year
    
    
    21,532
    
    
    
    21,445
    
    
    
    20,333Ceded reserves, end of year
    
    
    7,056
    
    
    
    8,191
    
    
    
    10,605Gross reserves, end of year
    
    $
    28,588
    
    
    $
    29,636
    
    
    $
    30,938
 
 (a)
    
    Total net incurred above does not agree to Insurance claims and policyholders benefit as
reflected in the Consolidated Statements of Operations due to expenses incurred related to
uncollectible reinsurance receivables and benefit expenses related to future policy benefits
and policyholders funds which are not reflected in the table above.(b)
    
    In 2006, net payments were decreased by $935 million due to the impact of significant
commutations. In 2005, net payments were decreased by $1,581 million due to the impact of
significant commutations. See Note H for further discussion related to commutations.  Reserve Development
 Years ended December 31
    
    2007
    
    
    2006
    
    
    2005(In millions)Asbestos and environmental pollution
    
    $
    7
    
    
    $
    
    
    
    $
    60Other
    
    
    213
    
    
    
    332
    
    
    
    1,047Property and casualty reserve development
    
    
    220
    
    
    
    332
    
    
    
    1,107Life reserve development in life company
    
    
    11
    
    
    
    29
    
    
    
    (7
    )Total
    
    $
    231
    
    
    $
    361
    
    
    $
    1,100
 96




---



##### Table of Contents



December 31, 2007
 Gross and Net Carried  Claim and Claim Adjustment Expense Reserves
 Life &
    
    
    CorporateStandard
    
    
    Specialty
    
    
    Group
    
    
    & Other(In millions)
    
    Lines
    
    
    Lines
    
    
    Non-Core
    
    
    Non-Core
    
    
    TotalGross Case Reserves
    
    $
    5,988
    
    
    $
    2,585
    
    
    $
    2,554
    
    
    $
    2,159
    
    
    $
    13,286Gross IBNR Reserves
    
    
    6,060
    
    
    
    5,818
    
    
    
    473
    
    
    
    2,951
    
    
    
    15,302Total Gross Carried Claim and Claim
Adjustment Expense Reserves
    
    $
    12,048
    
    
    $
    8,403
    
    
    $
    3,027
    
    
    $
    5,110
    
    
    $
    28,588Net Case Reserves
    
    $
    4,750
    
    
    $
    2,090
    
    
    $
    1,583
    
    
    $
    1,328
    
    
    $
    9,751Net IBNR Reserves
    
    
    5,170
    
    
    
    4,527
    
    
    
    297
    
    
    
    1,787
    
    
    
    11,781Total Net Carried Claim and Claim
Adjustment Expense Reserves
    
    $
    9,920
    
    
    $
    6,617
    
    
    $
    1,880
    
    
    $
    3,115
    
    
    $
    21,532
 December 31, 2006
 Gross and Net Carried
Claim and Claim Adjustment Expense Reserves
 Life &
    
    
    CorporateStandard
    
    
    Specialty
    
    
    Group
    
    
    & Other(In millions)
    
    Lines
    
    
    Lines
    
    
    Non-Core
    
    
    Non-Core
    
    
    TotalGross Case Reserves
    
    $
    5,826
    
    
    $
    2,635
    
    
    $
    2,366
    
    
    $
    2,511
    
    
    $
    13,338Gross IBNR Reserves
    
    
    6,691
    
    
    
    5,311
    
    
    
    768
    
    
    
    3,528
    
    
    
    16,298Total Gross Carried Claim and Claim
Adjustment Expense Reserves
    
    $
    12,517
    
    
    $
    7,946
    
    
    $
    3,134
    
    
    $
    6,039
    
    
    $
    29,636Net Case Reserves
    
    $
    4,571
    
    
    $
    2,013
    
    
    $
    1,496
    
    
    $
    1,453
    
    
    $
    9,533Net IBNR Reserves
    
    
    5,543
    
    
    
    4,010
    
    
    
    360
    
    
    
    1,999
    
    
    
    11,912Total Net Carried Claim and Claim
Adjustment Expense Reserves
    
    $
    10,114
    
    
    $
    6,023
    
    
    $
    1,856
    
    
    $
    3,452
    
    
    $
    21,445
  A&E Reserves
    97




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##### Table of Contents



A&E Reserves
 December 31, 2007
    
    
    December 31, 2006Environmental
    
    
    
    
    
    
    Environmental(In millions)
    
    Asbestos
    
    
    Pollution
    
    
    Asbestos
    
    
    PollutionGross reserves
    
    $
    2,352
    
    
    $
    367
    
    
    $
    2,635
    
    
    $
    427Ceded reserves
    
    
    (1,030
    )
    
    
    (125
    )
    
    
    (1,183
    )
    
    
    (142
    )Net reserves
    
    $
    1,322
    
    
    $
    242
    
    
    $
    1,452
    
    
    $
    285
 Asbestos
     98




---



##### Table of Contents



In re:
Burns & Roe Enterprises, Inc
 99




---



##### Table of Contents



Boson v. Union Carbide
Corp.,
 Pennock, et al. v. Maryland Casualty,
et al.
 100




---



##### Table of Contents



Environmental Pollution
  Net Prior Year Claim and Claim Adjustment Expense Reserve Development
    101




---



##### Table of Contents



2007 Net Prior Year Development
 CorporateStandard
    
    
    Specialty
    
    
    & Other Non-(In millions)
    
    Lines
    
    
    Lines
    
    
    Core
    
    
    TotalPretax unfavorable (favorable) net prior year claim and
allocated claim adjustment expense reserve development:Core (Non-A&E)
    
    $
    (104
    )
    
    $
    (25
    )
    
    $
    84
    
    
    $
    (45
    )A&E
    
    
    
    
    
    
    
    
    
    
    7
    
    
    
    7Pretax unfavorable (favorable) net prior year development
before impact of premium development
    
    
    (104
    )
    
    
    (25
    )
    
    
    91
    
    
    
    (38
    )Pretax favorable premium development
    
    
    (19
    )
    
    
    (11
    )
    
    
    (5
    )
    
    
    (35
    )Total pretax unfavorable (favorable) net prior year development
    
    $
    (123
    )
    
    $
    (36
    )
    
    $
    86
    
    
    $
    (73
    )
 2006 Net Prior Year Development
 CorporateStandard
    
    
    Specialty
    
    
    & Other Non-(In millions)
    
    Lines
    
    
    Lines
    
    
    Core
    
    
    TotalPretax unfavorable (favorable) net prior year claim and
allocated claim adjustment expense reserve development:Core (Non-A&E)
    
    $
    208
    
    
    $
    (61
    )
    
    $
    86
    
    
    $
    233A&E
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Pretax unfavorable (favorable) net prior year development
before impact of premium development
    
    
    208
    
    
    
    (61
    )
    
    
    86
    
    
    
    233Pretax unfavorable (favorable) premium development
    
    
    (58
    )
    
    
    (5
    )
    
    
    2
    
    
    
    (61
    )Total pretax unfavorable (favorable) net prior year development
    
    $
    150
    
    
    $
    (66
    )
    
    $
    88
    
    
    $
    172
 102




---



##### Table of Contents



2005 Net Prior Year Development
 CorporateStandard
    
    
    Specialty
    
    
    & Other Non-(In millions)
    
    Lines
    
    
    Lines
    
    
    Core
    
    
    TotalPretax unfavorable net prior year claim and allocated claim
adjustment expense reserve development, excluding the impact of
corporate aggregate reinsurance treaties:Core (Non-A&E)
    
    $
    279
    
    
    $
    139
    
    
    $
    174
    
    
    $
    592A&E
    
    
    
    
    
    
    
    
    
    
    60
    
    
    
    60Total
    
    
    279
    
    
    
    139
    
    
    
    234
    
    
    
    652Ceded losses related to corporate aggregate reinsurance treaties
    
    
    154
    
    
    
    34
    
    
    
    57
    
    
    
    245Pretax unfavorable net prior year development before impact of
premium development
    
    
    433
    
    
    
    173
    
    
    
    291
    
    
    
    897Unfavorable (favorable) premium development, excluding
impact of corporate aggregate reinsurance treaties
    
    
    (26
    )
    
    
    (87
    )
    
    
    11
    
    
    
    (102
    )Ceded premiums related to corporate aggregate reinsurance
treaties
    
    
    (4
    )
    
    
    17
    
    
    
    4
    
    
    
    17Pretax unfavorable (favorable) premium development
    
    
    (30
    )
    
    
    (70
    )
    
    
    15
    
    
    
    (85
    )Total pretax unfavorable net prior year development
    
    $
    403
    
    
    $
    103
    
    
    $
    306
    
    
    $
    812
 2007 Net Prior Year Development
 Standard Lines
      103




---



##### Table of Contents



Specialty Lines
       Corporate & Other Non-Core
   2006 Net Prior Year Development
 Standard Lines
    104




---



##### Table of Contents



Specialty Lines
       Corporate & Other Non-Core
  2005 Net Prior Year Development
 Standard Lines
  105




---



##### Table of Contents



Specialty Lines
  106




---



##### Table of Contents



Corporate & Other Non-Core
  107




---



##### Table of Contents



Note G. Legal Proceedings and Contingent Liabilities
 Insurance Brokerage Antitrust Litigation
 In re Insurance Brokerage Antitrust Litigation, Civil No.
04-5184 (FSH)
  Global Crossing Limited Litigation
  108




---



##### Table of Contents



California Long Term Care Litigation
 Shaffer v. Continental Casualty Company
 Asbestos and Environmental Pollution (A&E) Reserves
  Other Litigation
  Note H. Reinsurance
   109




---



##### Table of Contents



Components of reinsurance receivables(In millions)
    
    December 31, 2007
    
    
    December 31, 2006Reinsurance receivables related to insurance reserves:Ceded claim and claim adjustment expense
    
    $
    7,056
    
    
    $
    8,191Ceded future policy benefits
    
    
    987
    
    
    
    1,050Ceded policyholders funds
    
    
    43
    
    
    
    48Reinsurance receivables related to paid losses
    
    
    603
    
    
    
    658Reinsurance receivables
    
    
    8,689
    
    
    
    9,947Allowance for uncollectible reinsurance
    
    
    (461
    )
    
    
    (469
    )Reinsurance receivables, net of allowance
for uncollectible reinsurance
    
    $
    8,228
    
    
    $
    9,478
     Components of Earned Premiums
 Assumed/(In millions)
    
    Direct
    
    
    Assumed
    
    
    Ceded
    
    
    Net
    
    
    Net %2007 Earned PremiumsProperty and casualty
    
    $
    9,097
    
    
    $
    118
    
    
    $
    2,349
    
    
    $
    6,866
    
    
    
    1.7
    %Accident and health
    
    
    660
    
    
    
    76
    
    
    
    119
    
    
    
    617
    
    
    
    12.3Life
    
    
    76
    
    
    
    
    
    
    
    75
    
    
    
    1
    
    
    
    Total earned premiums
    
    $
    9,833
    
    
    $
    194
    
    
    $
    2,543
    
    
    $
    7,484
    
    
    
    2.6
    %2006 Earned PremiumsProperty and casualty
    
    $
    9,125
    
    
    $
    120
    
    
    $
    2,283
    
    
    $
    6,962
    
    
    
    1.7
    %Accident and health
    
    
    718
    
    
    
    59
    
    
    
    138
    
    
    
    639
    
    
    
    9.2Life
    
    
    100
    
    
    
    
    
    
    
    98
    
    
    
    2
    
    
    
    Total earned premiums
    
    $
    9,943
    
    
    $
    179
    
    
    $
    2,519
    
    
    $
    7,603
    
    
    
    2.4
    %2005 Earned PremiumsProperty and casualty
    
    $
    10,354
    
    
    $
    186
    
    
    $
    3,675
    
    
    $
    6,865
    
    
    
    2.7
    %Accident and health
    
    
    1,040
    
    
    
    60
    
    
    
    400
    
    
    
    700
    
    
    
    8.6Life
    
    
    140
    
    
    
    
    
    
    
    136
    
    
    
    4
    
    
    
    Total earned premiums
    
    $
    11,534
    
    
    $
    246
    
    
    $
    4,211
    
    
    $
    7,569
    
    
    
    3.3
    %
  110




---



##### Table of Contents



Components of Written Premiums
 Assumed/(In millions)
    
    Direct
    
    
    Assumed
    
    
    Ceded
    
    
    Net
    
    
    Net %2007 Written PremiumsProperty and casualty
    
    $
    8,925
    
    
    $
    123
    
    
    $
    2,272
    
    
    $
    6,776
    
    
    
    1.8
    %Accident and health
    
    
    646
    
    
    
    75
    
    
    
    113
    
    
    
    608
    
    
    
    12.3Life
    
    
    81
    
    
    
    
    
    
    
    80
    
    
    
    1
    
    
    
    Total written premiums
    
    $
    9,652
    
    
    $
    198
    
    
    $
    2,465
    
    
    $
    7,385
    
    
    
    2.7
    %2006 Written PremiumsProperty and casualty
    
    $
    9,193
    
    
    $
    111
    
    
    $
    2,282
    
    
    $
    7,022
    
    
    
    1.6
    %Accident and health
    
    
    719
    
    
    
    59
    
    
    
    139
    
    
    
    639
    
    
    
    9.2Life
    
    
    86
    
    
    
    
    
    
    
    84
    
    
    
    2
    
    
    
    Total written premiums
    
    $
    9,998
    
    
    $
    170
    
    
    $
    2,505
    
    
    $
    7,663
    
    
    
    2.2
    %2005 Written PremiumsProperty and casualty
    
    $
    9,546
    
    
    $
    203
    
    
    $
    2,934
    
    
    $
    6,815
    
    
    
    3.0
    %Accident and health
    
    
    1,037
    
    
    
    58
    
    
    
    395
    
    
    
    700
    
    
    
    8.3Life
    
    
    136
    
    
    
    
    
    
    
    132
    
    
    
    4
    
    
    
    Total written premiums
    
    $
    10,719
    
    
    $
    261
    
    
    $
    3,461
    
    
    $
    7,519
    
    
    
    3.5
    %
    Components of Life Insurance Inforce
 (In millions)
    
    Direct
    
    Assumed
    
    Ceded
    
    Net2007
    
    $
    14,089
    
    
    $
    1
    
    
    $
    14,071
    
    
    $
    192006
    
    
    15,652
    
    
    
    1
    
    
    
    15,633
    
    
    
    202005
    
    
    20,548
    
    
    
    1
    
    
    
    20,528
    
    
    
    21
  Commutations
   111




---



##### Table of Contents



Funds Withheld Reinsurance Arrangements
     Years ended December 31(In millions)
    
    Aggregate Cover
    
    
    CCC Cover
    
    
    All Other
    
    
    Total2007Ceded earned premium
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Ceded claim and claim adjustment expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Ceding commissions
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Interest charges
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Pretax expense
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    2006Ceded earned premium
    
    $
    
    
    
    $
    
    
    
    $
    (11
    )
    
    $
    (11
    )Ceded claim and claim adjustment expense
    
    
    
    
    
    
    
    
    
    
    (113
    )
    
    
    (113
    )Ceding commissions
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Interest charges
    
    
    
    
    
    
    (40
    )
    
    
    (19
    )
    
    
    (59
    )Pretax expense
    
    $
    
    
    
    $
    (40
    )
    
    $
    (143
    )
    
    $
    (183
    )2005Ceded earned premium
    
    $
    (17
    )
    
    $
    
    
    
    $
    48
    
    
    $
    31Ceded claim and claim adjustment expense
    
    
    (244
    )
    
    
    
    
    
    
    (154
    )
    
    
    (398
    )Ceding commissions
    
    
    
    
    
    
    
    
    
    
    (27
    )
    
    
    (27
    )Interest charges
    
    
    (57
    )
    
    
    (66
    )
    
    
    (34
    )
    
    
    (157
    )Pretax expense
    
    $
    (318
    )
    
    $
    (66
    )
    
    $
    (167
    )
    
    $
    (551
    )
  112




---



##### Table of Contents



Years ended December 31(In millions)
    
    2007
    
    
    2006
    
    
    2005Standard Lines
    
    $
    
    
    
    $
    (152
    )
    
    $
    (328
    )Specialty Lines
    
    
    
    
    
    
    (7
    )
    
    
    (112
    )Corporate & Other
    
    
    
    
    
    
    (24
    )
    
    
    (111
    )Pretax expense
    
    $
    
    
    
    $
    (183
    )
    
    $
    (551
    )
 Note I. Debt
  Debt
 December 31(In millions)
    
    2007
    
    
    2006Variable rate debt:Debenture  CNA Surety, face amount of $31, due April 29, 2034
    
    
    31
    
    
    
    31Senior notes:6.450%, face amount of $150, due January 15, 2008
    
    
    150
    
    
    
    1506.600%, face amount of $200, due December 15, 2008
    
    
    200
    
    
    
    2006.000%, face amount of $400, due August 15, 2011
    
    
    399
    
    
    
    3988.375%, face amount of $70, due August 15, 2012
    
    
    69
    
    
    
    695.850%, face amount of $549, due December 15, 2014
    
    
    546
    
    
    
    5466.500%, face amount of $350, due August 15, 2016
    
    
    348
    
    
    
    3486.950%, face amount of $150, due January 15, 2018
    
    
    149
    
    
    
    149Debenture, 7.250%, face amount of $243, due November 15, 2023
    
    
    241
    
    
    
    241Other debt, 1.000%-6.530%, due through 2019
    
    
    24
    
    
    
    24Total debt
    
    $
    2,157
    
    
    $
    2,156
   113




---



##### Table of Contents



Maturity of Debt
 (In millions)2008
    
    $
    3502009
    
    
    2010
    
    
    2011
    
    
    4002012
    
    
    70Thereafter
    
    
    1,347Less original issue discount
    
    
    (10
    )Total
    
    $
    2,157
 Note J. Benefit Plans
 Pension and Postretirement Healthcare and Life Insurance Benefit Plans
     114




---



##### Table of Contents



Benefit Obligations and Accrued Benefit Costs
 Pension Benefits
    
    
    Postretirement Benefits(In millions)
    
    2007
    
    
    2006
    
    
    2007
    
    
    2006Benefit obligation at January 1
    
    $
    2,602
    
    
    $
    2,636
    
    
    $
    177
    
    
    $
    210Changes in benefit obligation:Service cost
    
    
    23
    
    
    
    26
    
    
    
    2
    
    
    
    2Interest cost
    
    
    145
    
    
    
    142
    
    
    
    9
    
    
    
    10Participants contributions
    
    
    
    
    
    
    
    
    
    
    7
    
    
    
    7Plan amendments
    
    
    (7
    )
    
    
    
    
    
    
    
    
    
    
    Actuarial gain
    
    
    (111
    )
    
    
    (60
    )
    
    
    (15
    )
    
    
    (34
    )Benefits paid
    
    
    (147
    )
    
    
    (152
    )
    
    
    (18
    )
    
    
    (19
    )Special termination benefits
    
    
    
    
    
    
    2
    
    
    
    
    
    
    
    Foreign currency translation and other
    
    
    (2
    )
    
    
    8
    
    
    
    
    
    
    
    1Benefit obligations at December 31
    
    
    2,503
    
    
    
    2,602
    
    
    
    162
    
    
    
    177Fair value of plan assets at January 1
    
    
    2,258
    
    
    
    2,107
    
    
    
    
    
    
    
    Change in plan assets:Actual return on plan assets
    
    
    187
    
    
    
    226
    
    
    
    
    
    
    
    Company contributions
    
    
    30
    
    
    
    79
    
    
    
    11
    
    
    
    12Participants contributions
    
    
    
    
    
    
    
    
    
    
    7
    
    
    
    7Benefits paid
    
    
    (147
    )
    
    
    (152
    )
    
    
    (18
    )
    
    
    (19
    )Foreign currency translation and other
    
    
    3
    
    
    
    (2
    )
    
    
    
    
    
    
    Fair value of plan assets at December 31
    
    
    2,331
    
    
    
    2,258
    
    
    
    
    
    
    
    Funded status
    
    $
    (172
    )
    
    $
    (344
    )
    
    $
    (162
    )
    
    $
    (177
    )Amounts recognized in the Consolidated Balance
Sheets at December 31:Other assets
    
    $
    3
    
    
    $
    
    
    
    $
    
    
    
    $
    Other liabilities
    
    
    (175
    )
    
    
    (344
    )
    
    
    (162
    )
    
    
    (177
    )Net amount recognized
    
    $
    (172
    )
    
    $
    (344
    )
    
    $
    (162
    )
    
    $
    (177
    )Amounts recognized in Accumulated other
comprehensive income,
not yet recognized in net periodic benefit cost:Net transition asset
    
    $
    
    
    
    $
    (1
    )
    
    $
    
    
    
    $
    Prior service cost (credit)
    
    
    (3
    )
    
    
    6
    
    
    
    (128
    )
    
    
    (146
    )Net actuarial loss
    
    
    242
    
    
    
    381
    
    
    
    37
    
    
    
    55Net amount recognized
    
    $
    239
    
    
    $
    386
    
    
    $
    (91
    )
    
    $
    (91
    )
  115




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Pension and Postretirement Plans with Accumulated Benefit Obligation in Excess of Plan Assets
 Pension Benefits
    
    Postretirement Benefits(In millions)
    
    2007
    
    2006
    
    2007
    
    2006Accumulated benefit obligation
    
    $
    91
    
    
    $
    2,351
    
    
    $
    162
    
    
    $
    177Fair value of plan assets
    
    
    
    
    
    
    2,148
    
    
    
    
    
    
    
    
  Years ended December 31(In millions)
    
    2007
    
    
    2006
    
    
    2005Pension benefitsService cost
    
    $
    23
    
    
    $
    26
    
    
    $
    27Interest cost on projected benefit obligation
    
    
    145
    
    
    
    142
    
    
    
    145Expected return on plan assets
    
    
    (174
    )
    
    
    (162
    )
    
    
    (156
    )Prior service cost amortization
    
    
    2
    
    
    
    2
    
    
    
    2Actuarial loss amortization
    
    
    11
    
    
    
    25
    
    
    
    21Net periodic pension cost
    
    $
    7
    
    
    $
    33
    
    
    $
    39Postretirement benefitsService cost
    
    $
    2
    
    
    $
    2
    
    
    $
    3Interest cost on projected benefit obligation
    
    
    9
    
    
    
    10
    
    
    
    10Prior service cost amortization
    
    
    (18
    )
    
    
    (28
    )
    
    
    (28
    )Actuarial loss amortization
    
    
    3
    
    
    
    4
    
    
    
    4Net periodic postretirement benefit
    
    $
    (4
    )
    
    $
    (12
    )
    
    $
    (11
    )
  Years ended December 31(In millions)
    
    2007
    
    
    2006
    
    
    2005Pension and postretirement benefits(Increase) decrease in FAS 87 minimum liability
    
    $
    
    
    
    $
    124
    
    
    $
    (51
    )Amounts arising during the period
    
    
    151
    
    
    
    
    
    
    
    Reclassification adjustment relating to prior service cost
    
    
    (16
    )
    
    
    
    
    
    
    Reclassification adjustment relating to actuarial loss
    
    
    14
    
    
    
    
    
    
    
    Total increase (decrease) in Other comprehensive income
    
    $
    149
    
    
    $
    124
    
    
    $
    (51
    )
  Pension
    
    
    Postretirement(In millions)
    
    Benefits
    
    
    BenefitsAmortization of prior service cost
    
    $
    
    
    
    $
    (16
    )Amortization of actuarial loss
    
    
    3
    
    
    
    2Total estimated amounts to be recognized
    
    $
    3
    
    
    $
    (14
    )
 116




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Weighted Average Actuarial Assumptions for Benefit Obligations
 December 31
    
    2007
    
    2006Pension benefitsDiscount rate
    
    
    6.000
    %
    
    
    5.750
    %Expected long term rate of return
    
    
    8.000
    
    
    
    8.000Rate of compensation increases
    
    
    5.830
    
    
    
    5.830Postretirement benefitsDiscount rate
    
    
    5.875
    %
    
    
    5.625
    %
  Weighted Average Actuarial Assumptions for Net Cost
 December 31
    
    2007
    
    2006
    
    2005Pension benefitsDiscount rate
    
    
    5.750
    %
    
    
    5.625
    %
    
    
    5.875
    %Expected long term rate of return
    
    
    8.000
    
    
    
    8.000
    
    
    
    8.000Rate of compensation increases
    
    
    5.830
    
    
    
    5.830
    
    
    
    5.830Postretirement benefitsDiscount rate
    
    
    5.625
    %
    
    
    5.500
    %
    
    
    5.875
    %
    Pension Plan Assets
 Percentage of Plan AssetsDecember 31
    
    2007
    
    
    2006Asset CategoryFixed maturity securities
    
    
    25
    %
    
    
    48
    %Equity securities
    
    
    20
    
    
    
    26Limited partnerships
    
    
    28
    
    
    
    22Short term investments
    
    
    26
    
    
    
    2Other
    
    
    1
    
    
    
    2Total
    
    
    100
    %
    
    
    100
    %
  117




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##### Table of Contents



Estimated Future Minimum Benefit Payments to Participants
 Pension
    
    Postretirement(In millions)
    
    Benefits
    
    Benefits2008
    
    $
    154
    
    
    $
    122009
    
    
    153
    
    
    
    122010
    
    
    153
    
    
    
    132011
    
    
    155
    
    
    
    132012
    
    
    158
    
    
    
    132013-2017
    
    
    846
    
    
    
    66
  Savings Plans
    Stock-Based Compensation
  118




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##### Table of Contents



Options and SARs Plan Activity
 2007Weighted-AverageOptionNumber
    
    
    Price perof Awards
    
    
    AwardBalance at January 1
    
    
    1,694,900
    
    
    $
    28.86Awards granted
    
    
    333,800
    
    
    
    41.86Awards exercised
    
    
    (532,950
    )
    
    
    29.88Awards forfeited or expired
    
    
    (87,200
    )
    
    
    34.37Balance at December 31
    
    
    1,408,550
    
    
    $
    31.21Awards vested and expected to vest at December 31
    
    
    1,296,437
    
    
    $
    30.75Awards exercisable at December 31
    
    
    705,150
    
    
    $
    27.96Weighted average fair value per share of awards granted
    
    
    
    
    
    $
    13.83
       119




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##### Table of Contents



Note K. Operating Leases, Other Commitments and Contingencies, and Guarantees
 Operating Leases
   Future Minimum Lease Payments and Sublease Receipts
 Future
    
    
    FutureMinimum
    
    
    MinimumLease
    
    
    Sublease(In millions)
    
    Payments
    
    
    Receipts2008
    
    $
    44
    
    
    $
    32009
    
    
    41
    
    
    
    32010
    
    
    38
    
    
    
    32011
    
    
    34
    
    
    
    32012
    
    
    29
    
    
    
    3Thereafter
    
    
    61
    
    
    
    2Total
    
    $
    247
    
    
    $
    17
   Other Commitments and Contingencies
   120




---



##### Table of Contents



Guarantees
    Note L. Stockholders Equity and Statutory Financial Information
 Stockholders Equity
     Statutory Accounting Practices (Unaudited)
   121




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##### Table of Contents



Preliminary Statutory Information
 Statutory Capital and Surplus
    
    
    Statutory Net IncomeDecember 31
    
    
    Years Ended December 312007
    
    
    2006
    
    
    2007
    
    
    2006
    
    
    2005(In millions)Property and casualty companies (a)
    
    $
    8,511
    
    
    $
    8,137
    
    
    $
    575
    
    
    $
    721
    
    
    $
    550Life company
    
    
    471
    
    
    
    687
    
    
    
    27
    
    
    
    67
    
    
    
    65
 
 (a)
    
    Surplus includes the property and casualty companies equity ownership of the life companys
capital and surplus. 122




---



##### Table of Contents



Note M. Comprehensive Income (Loss)
  Comprehensive Income (Loss)
 Years ended December 31(In millions)
    
    2007
    
    
    2006
    
    
    2005Net income
    
    $
    851
    
    
    $
    1,108
    
    
    $
    264Other comprehensive income (loss):Change in unrealized gains (losses) on general account investments:Holding gains (losses) arising during the period, net of tax
(expense) benefit of $226, $(68) and $72
    
    
    (420
    )
    
    
    127
    
    
    
    (136
    )Reclassification adjustment for (gains) losses included in net
income, net of tax expense (benefit) of $87, $6 and $71
    
    
    (159
    )
    
    
    (11
    )
    
    
    (131
    )Net change in unrealized gains (losses) on general account
investments, net of tax (expense) benefit of $313, $(62) and $143
    
    
    (579
    )
    
    
    116
    
    
    
    (267
    )Net change in unrealized gains (losses) on discontinued
operations, separate accounts and other, net of tax (expense)
benefit of $2, $4 and $16
    
    
    3
    
    
    
    (6
    )
    
    
    4Net change in foreign currency translation adjustment
    
    
    30
    
    
    
    42
    
    
    
    (24
    )Net change related to pension and postretirement benefits, net of
tax (expense) benefit of $(52), $(44) and $18
    
    
    97
    
    
    
    80
    
    
    
    (33
    )Allocation to participating policyholders and minority interests
    
    
    3
    
    
    
    4
    
    
    
    18Other comprehensive income (loss), net of tax (expense) benefit of
$263, $(102) and $177
    
    
    (446
    )
    
    
    236
    
    
    
    (302
    )Total comprehensive income (loss)
    
    $
    405
    
    
    $
    1,344
    
    
    $
    (38
    )
  Accumulated Other Comprehensive Income
 December 31(In millions)
    
    2007
    
    
    2006Cumulative foreign currency translation adjustment
    
    $
    123
    
    
    $
    93Net pension and postretirement benefit liabilities, net of tax benefit of $52 and $79
    
    
    (96
    )
    
    
    (147
    )Adjustment to initially apply FAS 158, net of tax benefit of $25
    
    
    
    
    
    
    (46
    )Net unrealized gains on investments and other, net of tax expense of $14 and $329
    
    
    76
    
    
    
    649Accumulated other comprehensive income
    
    $
    103
    
    
    $
    549
 Note N. Business Segments
    123




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124




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##### Table of Contents



Year ended December 31, 2007
    
    Standard
    
    
    Specialty
    
    
    Life & Group
    
    
    Corporate & Other(In millions)
    
    Lines
    
    
    Lines
    
    
    Non-Core
    
    
    Non-Core
    
    
    Eliminations
    
    
    TotalRevenues:Net earned premiums
    
    $
    3,379
    
    
    $
    3,484
    
    
    $
    618
    
    
    $
    7
    
    
    $
    (4
    )
    
    $
    7,484Net investment income
    
    
    878
    
    
    
    621
    
    
    
    622
    
    
    
    312
    
    
    
    
    
    
    
    2,433Other revenues
    
    
    47
    
    
    
    188
    
    
    
    36
    
    
    
    8
    
    
    
    
    
    
    
    279Total operating revenues
    
    
    4,304
    
    
    
    4,293
    
    
    
    1,276
    
    
    
    327
    
    
    
    (4
    )
    
    
    10,196Claims, benefits and expenses:Net incurred claims and benefits
    
    
    2,279
    
    
    
    2,187
    
    
    
    1,312
    
    
    
    217
    
    
    
    
    
    
    
    5,995Policyholders dividends
    
    
    6
    
    
    
    7
    
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    14Amortization of deferred acquisition costs
    
    
    761
    
    
    
    744
    
    
    
    15
    
    
    
    
    
    
    
    
    
    
    
    1,520Other insurance related expenses
    
    
    338
    
    
    
    187
    
    
    
    199
    
    
    
    13
    
    
    
    (4
    )
    
    
    733Other expenses
    
    
    43
    
    
    
    185
    
    
    
    43
    
    
    
    130
    
    
    
    
    
    
    
    401Total claims, benefits and expenses
    
    
    3,427
    
    
    
    3,310
    
    
    
    1,570
    
    
    
    360
    
    
    
    (4
    )
    
    
    8,663Operating income (loss) from continuing
operations
before income tax and minority interest
    
    
    877
    
    
    
    983
    
    
    
    (294
    )
    
    
    (33
    )
    
    
    
    
    
    
    1,533Income tax (expense) benefit on operating income
(loss)
    
    
    (275
    )
    
    
    (317
    )
    
    
    135
    
    
    
    32
    
    
    
    
    
    
    
    (425
    )Minority interest
    
    
    
    
    
    
    (47
    )
    
    
    
    
    
    
    (1
    )
    
    
    
    
    
    
    (48
    )Net operating income (loss) from continuing
operations
    
    
    602
    
    
    
    619
    
    
    
    (159
    )
    
    
    (2
    )
    
    
    
    
    
    
    1,060Realized investment losses, net of participating
policyholders and minority interests
    
    
    (149
    )
    
    
    (81
    )
    
    
    (56
    )
    
    
    (25
    )
    
    
    
    
    
    
    (311
    )Income tax benefit on realized investment
losses
    
    
    52
    
    
    
    28
    
    
    
    20
    
    
    
    8
    
    
    
    
    
    
    
    108Income (loss) from continuing operations
    
    $
    505
    
    
    $
    566
    
    
    $
    (195
    )
    
    $
    (19
    )
    
    $
    
    
    
    $
    857December 31, 2007(In millions)Reinsurance receivables
    
    $
    2,269
    
    
    $
    1,819
    
    
    $
    2,201
    
    
    $
    2,400
    
    
    $
    
    
    
    $
    8,689Insurance receivables
    
    $
    1,664
    
    
    $
    605
    
    
    $
    26
    
    
    $
    (11
    )
    
    $
    
    
    
    $
    2,284Insurance reserves:Claim and claim adjustment expenses
    
    $
    12,048
    
    
    $
    8,403
    
    
    $
    3,027
    
    
    $
    5,110
    
    
    $
    
    
    
    $
    28,588Unearned premiums
    
    
    1,483
    
    
    
    1,948
    
    
    
    162
    
    
    
    5
    
    
    
    
    
    
    
    3,598Future policy benefits
    
    
    
    
    
    
    
    
    
    
    7,106
    
    
    
    
    
    
    
    
    
    
    
    7,106Policyholders funds
    
    
    26
    
    
    
    1
    
    
    
    903
    
    
    
    
    
    
    
    
    
    
    
    930Deferred acquisition costs
    
    $
    311
    
    
    $
    365
    
    
    $
    485
    
    
    $
    
    
    
    $
    
    
    
    $
    1,161
 125




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##### Table of Contents



Year ended December 31, 2006
    
    Standard
    
    
    Specialty
    
    
    Life & Group
    
    
    Corporate & Other(In millions)
    
    Lines
    
    
    Lines
    
    
    Non-Core
    
    
    Non-Core
    
    
    Eliminations
    
    
    TotalRevenues:Net earned premiums
    
    $
    3,557
    
    
    $
    3,411
    
    
    $
    641
    
    
    $
    (1
    )
    
    $
    (5
    )
    
    $
    7,603Net investment income
    
    
    840
    
    
    
    554
    
    
    
    698
    
    
    
    320
    
    
    
    
    
    
    
    2,412Other revenues
    
    
    44
    
    
    
    156
    
    
    
    66
    
    
    
    9
    
    
    
    
    
    
    
    275Total operating revenues
    
    
    4,441
    
    
    
    4,121
    
    
    
    1,405
    
    
    
    328
    
    
    
    (5
    )
    
    
    10,290Claims, benefits and expenses:Net incurred claims and benefits
    
    
    2,579
    
    
    
    2,060
    
    
    
    1,195
    
    
    
    190
    
    
    
    1
    
    
    
    6,025Policyholders dividends
    
    
    18
    
    
    
    4
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    22Amortization of deferred acquisition costs
    
    
    805
    
    
    
    714
    
    
    
    14
    
    
    
    1
    
    
    
    
    
    
    
    1,534Other insurance related expenses
    
    
    319
    
    
    
    219
    
    
    
    201
    
    
    
    24
    
    
    
    (6
    )
    
    
    757Restructuring and other related charges
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (13
    )
    
    
    
    
    
    
    (13
    )Other expenses
    
    
    66
    
    
    
    151
    
    
    
    58
    
    
    
    126
    
    
    
    
    
    
    
    401Total claims, benefits and expenses
    
    
    3,787
    
    
    
    3,148
    
    
    
    1,468
    
    
    
    328
    
    
    
    (5
    )
    
    
    8,726Operating income (loss) from continuing operations
before income tax and minority interest
    
    
    654
    
    
    
    973
    
    
    
    (63
    )
    
    
    
    
    
    
    
    
    
    
    1,564Income tax (expense) benefit on operating income
(loss)
    
    
    (208
    )
    
    
    (295
    )
    
    
    49
    
    
    
    4
    
    
    
    
    
    
    
    (450
    )Minority interest
    
    
    
    
    
    
    (43
    )
    
    
    
    
    
    
    (1
    )
    
    
    
    
    
    
    (44
    )Net operating income (loss) from continuing
operations
    
    
    446
    
    
    
    635
    
    
    
    (14
    )
    
    
    3
    
    
    
    
    
    
    
    1,070Realized investment gains (losses), net of
participating
policyholders and minority interests
    
    
    72
    
    
    
    32
    
    
    
    (50
    )
    
    
    32
    
    
    
    
    
    
    
    86Income tax (expense) benefit on realized investment
gains (losses)
    
    
    (24
    )
    
    
    (7
    )
    
    
    17
    
    
    
    (5
    )
    
    
    
    
    
    
    (19
    )Income (loss) from continuing operations
    
    $
    494
    
    
    $
    660
    
    
    $
    (47
    )
    
    $
    30
    
    
    $
    
    
    
    $
    1,137December 31, 2006(In millions)Reinsurance receivables
    
    $
    2,617
    
    
    $
    1,939
    
    
    $
    2,378
    
    
    $
    3,013
    
    
    $
    
    
    
    $
    9,947Insurance receivables
    
    $
    1,672
    
    
    $
    805
    
    
    $
    52
    
    
    $
    (53
    )
    
    $
    
    
    
    $
    2,476Insurance reserves:Claim and claim adjustment expenses
    
    $
    12,517
    
    
    $
    7,946
    
    
    $
    3,134
    
    
    $
    6,039
    
    
    $
    
    
    
    $
    29,636Unearned premiums
    
    
    1,633
    
    
    
    1,973
    
    
    
    173
    
    
    
    5
    
    
    
    
    
    
    
    3,784Future policy benefits
    
    
    
    
    
    
    
    
    
    
    6,645
    
    
    
    
    
    
    
    
    
    
    
    6,645Policyholders funds
    
    
    35
    
    
    
    
    
    
    
    980
    
    
    
    
    
    
    
    
    
    
    
    1,015Deferred acquisition costs
    
    $
    338
    
    
    $
    352
    
    
    $
    500
    
    
    $
    
    
    
    $
    
    
    
    $
    1,190
 126




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##### Table of Contents



Year ended December 31, 2005
    
    Standard
    
    
    Specialty
    
    
    Life & Group
    
    
    Corporate & Other(In millions)
    
    Lines
    
    
    Lines
    
    
    Non-Core
    
    
    Non-Core
    
    
    Eliminations
    
    
    TotalRevenues:Net earned premiums
    
    $
    3,518
    
    
    $
    3,367
    
    
    $
    704
    
    
    $
    (8
    )
    
    $
    (12
    )
    
    $
    7,569Net investment income
    
    
    632
    
    
    
    416
    
    
    
    593
    
    
    
    251
    
    
    
    
    
    
    
    1,892Other revenues
    
    
    17
    
    
    
    140
    
    
    
    95
    
    
    
    159
    
    
    
    
    
    
    
    411Total operating revenues
    
    
    4,167
    
    
    
    3,923
    
    
    
    1,392
    
    
    
    402
    
    
    
    (12
    )
    
    
    9,872Claims, benefits and expenses:Net incurred claims and benefits
    
    
    3,176
    
    
    
    2,298
    
    
    
    1,160
    
    
    
    343
    
    
    
    (2
    )
    
    
    6,975Policyholders dividends
    
    
    19
    
    
    
    4
    
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    24Amortization of deferred acquisition costs
    
    
    816
    
    
    
    702
    
    
    
    22
    
    
    
    3
    
    
    
    
    
    
    
    1,543Other insurance related expenses
    
    
    338
    
    
    
    221
    
    
    
    257
    
    
    
    23
    
    
    
    (10
    )
    
    
    829Other expenses
    
    
    23
    
    
    
    130
    
    
    
    61
    
    
    
    115
    
    
    
    
    
    
    
    329Total claims, benefits and expenses
    
    
    4,372
    
    
    
    3,355
    
    
    
    1,501
    
    
    
    484
    
    
    
    (12
    )
    
    
    9,700Operating income (loss) from continuing
operations
before income tax and minority interest
    
    
    (205
    )
    
    
    568
    
    
    
    (109
    )
    
    
    (82
    )
    
    
    
    
    
    
    172Income tax (expense) benefit on operating income
(loss)
    
    
    118
    
    
    
    (162
    )
    
    
    58
    
    
    
    91
    
    
    
    
    
    
    
    105Minority interest
    
    
    
    
    
    
    (24
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (24
    )Net operating income (loss) from continuing
operations
    
    
    (87
    )
    
    
    382
    
    
    
    (51
    )
    
    
    9
    
    
    
    
    
    
    
    253Realized investment gains (losses), net of
participating policyholders and minority
interests
    
    
    30
    
    
    
    4
    
    
    
    (30
    )
    
    
    (14
    )
    
    
    
    
    
    
    (10
    )Income tax (expense) benefit on realized
investment
gains (losses)
    
    
    (11
    )
    
    
    (2
    )
    
    
    11
    
    
    
    2
    
    
    
    
    
    
    
    Income (loss) from continuing operations
    
    $
    (68
    )
    
    $
    384
    
    
    $
    (70
    )
    
    $
    (3
    )
    
    $
    
    
    
    $
    243
 127




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##### Table of Contents



Revenues by Line of Business
 Years ended December 31(In millions)
    
    2007
    
    
    2006
    
    
    2005Standard LinesBusiness Insurance
    
    $
    628
    
    
    $
    603
    
    
    $
    577Commercial Insurance
    
    
    3,527
    
    
    
    3,910
    
    
    
    3,620Standard Lines revenues
    
    
    4,155
    
    
    
    4,513
    
    
    
    4,197Specialty LinesU.S. Specialty Lines
    
    
    2,669
    
    
    
    2,679
    
    
    
    2,583Surety
    
    
    468
    
    
    
    436
    
    
    
    393Warranty
    
    
    293
    
    
    
    287
    
    
    
    296CNA Global
    
    
    782
    
    
    
    751
    
    
    
    655Specialty Lines revenues
    
    
    4,212
    
    
    
    4,153
    
    
    
    3,927Life & Group Non-CoreLife & Annuity
    
    
    257
    
    
    
    384
    
    
    
    311Health
    
    
    911
    
    
    
    889
    
    
    
    900Other
    
    
    52
    
    
    
    82
    
    
    
    151Life & Group Non-Core revenues
    
    
    1,220
    
    
    
    1,355
    
    
    
    1,362Corporate & Other Non-CoreCNA Re
    
    
    119
    
    
    
    129
    
    
    
    71Other
    
    
    183
    
    
    
    231
    
    
    
    317Corporate & Other Non-Core revenues
    
    
    302
    
    
    
    360
    
    
    
    388Eliminations
    
    
    (4
    )
    
    
    (5
    )
    
    
    (12
    )Total revenues
    
    $
    9,885
    
    
    $
    10,376
    
    
    $
    9,862
 Note O. Restructuring and Other Related Charges
  Note P. Discontinued Operations
  128




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##### Table of Contents



Discontinued Operations
 Years ended December 31(In millions)
    
    2007
    
    
    2006
    
    
    2005Revenues:Net investment income
    
    $
    13
    
    
    $
    17
    
    
    $
    15Realized investment gains (losses) and other
    
    
    6
    
    
    
    (2
    )
    
    
    7Total revenues
    
    
    19
    
    
    
    15
    
    
    
    22Insurance related (expenses) benefits
    
    
    (25
    )
    
    
    (51
    )
    
    
    1Income (loss) before income taxes
    
    
    (6
    )
    
    
    (36
    )
    
    
    23Income tax (expense) benefit
    
    
    
    
    
    
    7
    
    
    
    (2
    )Income (loss) from discontinued operations, net of tax
    
    $
    (6
    )
    
    $
    (29
    )
    
    $
    21
   Discontinued Operations
 December 31(In millions)
    
    2007
    
    
    2006Assets:Investments
    
    $
    185
    
    
    $
    317Reinsurance receivables
    
    
    1
    
    
    
    33Cash
    
    
    7
    
    
    
    40Other assets
    
    
    4
    
    
    
    3Total assets
    
    
    197
    
    
    
    393Liabilities:Insurance reserves
    
    
    172
    
    
    
    308Other liabilities
    
    
    2
    
    
    
    17Total liabilities
    
    
    174
    
    
    
    325Net assets of discontinued operations
    
    $
    23
    
    
    $
    68
 Reporting the Results of Operations  Reporting the Effects of Disposal of a Segment of a
Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions
 129




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##### Table of Contents



Note Q. Quarterly Financial Data (Unaudited)
  Quarterly Financial Data
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    FullFirst
    
    
    Second
    
    
    Third
    
    
    Fourth
    
    
    Year(In millions, except per share data)2007Revenues
    
    $
    2,517
    
    
    $
    2,469
    
    
    $
    2,484
    
    
    $
    2,415
    
    
    $
    9,885Income from continuing operations before
income tax
    
    $
    426
    
    
    $
    318
    
    
    $
    230
    
    
    $
    200
    
    
    $
    1,174Income tax expense
    
    
    (132
    )
    
    
    (91
    )
    
    
    (56
    )
    
    
    (38
    )
    
    
    (317
    )Income from continuing operations
    
    
    294
    
    
    
    227
    
    
    
    174
    
    
    
    162
    
    
    
    857Income (loss) from discontinued
operations, net of tax
    
    
    2
    
    
    
    (10
    )
    
    
    
    
    
    
    2
    
    
    
    (6
    )Net income
    
    $
    296
    
    
    $
    217
    
    
    $
    174
    
    
    $
    164
    
    
    $
    851Basic and Diluted Earnings Per ShareIncome from continuing operations
    
    $
    1.08
    
    
    $
    0.84
    
    
    $
    0.64
    
    
    $
    0.59
    
    
    $
    3.15Income (loss) from discontinued operations
    
    
    0.01
    
    
    
    (0.04
    )
    
    
    
    
    
    
    0.01
    
    
    
    (0.02
    )Basic and diluted earnings per share
available to common stockholders
    
    $
    1.09
    
    
    $
    0.80
    
    
    $
    0.64
    
    
    $
    0.60
    
    
    $
    3.13
 Quarterly Financial Data
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    FullFirst
    
    
    Second
    
    
    Third
    
    
    Fourth
    
    
    Year(In millions, except per share data)2006Revenues
    
    $
    2,501
    
    
    $
    2,412
    
    
    $
    2,620
    
    
    $
    2,843
    
    
    $
    10,376Income from continuing operations before
income tax
    
    $
    343
    
    
    $
    341
    
    
    $
    436
    
    
    $
    486
    
    
    $
    1,606Income tax expense
    
    
    (108
    )
    
    
    (100
    )
    
    
    (131
    )
    
    
    (130
    )
    
    
    (469
    )Income from continuing operations
    
    
    235
    
    
    
    241
    
    
    
    305
    
    
    
    356
    
    
    
    1,137Income (loss) from discontinued
operations, net of tax
    
    
    (6
    )
    
    
    (2
    )
    
    
    6
    
    
    
    (27
    )
    
    
    (29
    )Net income
    
    $
    229
    
    
    $
    239
    
    
    $
    311
    
    
    $
    329
    
    
    $
    1,108Basic Earnings Per ShareIncome from continuing operations
    
    $
    0.84
    
    
    $
    0.87
    
    
    $
    1.13
    
    
    $
    1.33
    
    
    $
    4.17Income (loss) from discontinued operations
    
    
    (0.02
    )
    
    
    (0.01
    )
    
    
    0.02
    
    
    
    (0.10
    )
    
    
    (0.11
    )Basic earnings per share available to
common stockholders
    
    $
    0.82
    
    
    $
    0.86
    
    
    $
    1.15
    
    
    $
    1.23
    
    
    $
    4.06Diluted Earnings Per ShareIncome from continuing operations
    
    $
    0.84
    
    
    $
    0.87
    
    
    $
    1.13
    
    
    $
    1.32
    
    
    $
    4.16Income (loss) from discontinued operations
    
    
    (0.02
    )
    
    
    (0.01
    )
    
    
    0.02
    
    
    
    (0.10
    )
    
    
    (0.11
    )Diluted earnings per share available to
common stockholders
    
    $
    0.82
    
    
    $
    0.86
    
    
    $
    1.15
    
    
    $
    1.22
    
    
    $
    4.05
 130




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##### Table of Contents



Note R. Related Party Transactions
    CNA Surety Corporation- Loans to National Contractor
    131




---



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Reinsurance with CNA Surety
  132




---



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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
      133




---



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134




---



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MANAGEMENTS REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
     
 135




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##### Table of Contents



ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
  
 ITEM 9A. CONTROLS AND PROCEDURES
    
 ITEM 9B. OTHER INFORMATION
  136




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##### Table of Contents



PART III
 
 ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
  FIRSTPOSITION AND
    
    
    
    
    
    BECAMEOFFICES HELD
    
    
    
    
    
    EXECUTIVEWITH
    
    
    
    
    
    OFFICER OFNAME
    
    REGISTRANT
    
    

    AGE
    
    

    CNA
    
    PRINCIPAL OCCUPATION DURING PAST FIVE YEARSStephen W. Lilienthal
    
    Chief Executive
Officer, CNA
Financial
Corporation
    
    
    57
    
    
    
    2001
    
    
    Chief Executive Officer of CNA Financial Corporation.Michael Fusco
    
    Executive Vice
President, Chief
Actuary, CNA
insurance companies
    
    
    59
    
    
    
    2004
    
    
    Executive Vice President, Chief Actuary of the CNA
insurance companies.Jonathan D. Kantor
    
    Executive Vice 
President, General 
Counsel and 
Secretary
    
    
    52
    
    
    
    1997
    
    
    Executive Vice President, General Counsel and
Secretary of CNA Financial Corporation.James R. Lewis
    
    President and Chief 
Executive Officer, 
Property and 
Casualty
Operations, CNA
insurance companies
    
    
    58
    
    
    
    2002
    
    
    President and Chief Executive Officer, Property and
Casualty Operations of the CNA insurance companies.D. Craig Mense
    
    Executive Vice
President & Chief
Financial Officer
    
    
    56
    
    
    
    2004
    
    
    Executive Vice President and Chief Financial Officer
since November, 2004. Prior to that time,
President and Chief Executive Officer of Global
Run-Off Operations at St. Paul Travelers from June,
2004 to November, 2004. Prior to that time, the
following positions at Travelers Property Casualty
Corp.: Chief Operating Officer of the Gulf Insurance
Group (May, 2003 to May, 2004); and Chief Financial
and Administrative Officer (Personal Lines) (July,
2002 to March, 2003).
   
 ITEM 11. EXECUTIVE COMPENSATION
 
 137




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##### Table of Contents



ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
 Equity Compensation Plan
  Executive
Compensation
Information
 December 31, 2007
 Number of securitiesNumber of securities to
    
    
    
    
    
    
    remaining available forbe issued upon
    
    
    Weighted average exercise
    
    
    future issuance underexercise of outstanding
    
    
    price of outstanding
    
    
    equity compensation plansoptions, warrants and
    
    
    options, warrants and
    
    
    (excluding securitiesrights
    
    
    rights
    
    
    reflected in column (a))(a)
    
    
    (b)
    
    
    (c)Plan CategoryEquity compensation
plans approved by
security holders
    
    
    1,408,550
    
    
    $
    31.21
    
    
    
    1,765,125Equity compensation
plans not approved
by security holders
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    1,408,550
    
    
    $
    31.21
    
    
    
    1,765,125
  
 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
  
 ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
  138




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##### Table of Contents



PART IV
 
 ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
 PageNumber(a
    )
    
    
    1.
    
    
    FINANCIAL STATEMENTS:Statements of Operations  Years Ended December 31, 2007, 2006, and 2005
    
    
    66Balance Sheets  December 31, 2007 and 2006
    
    
    67Statements of Cash Flows  Years Ended December 31, 2007, 2006 and 2005
    
    
    68Statements of Stockholders Equity  Years Ended December 31, 2007, 2006 and 2005
    
    
    70Notes to Consolidated Financial Statements
    
    
    71Report of Independent Registered Public Accounting Firm
    
    
    133(a
    )
    
    
    2.
    
    
    FINANCIAL STATEMENT SCHEDULES:Schedule I Summary of Investments
    
    
    143Schedule II Condensed Financial Information of Registrant (Parent Company)
    
    
    144Schedule III Supplementary Insurance Information
    
    
    149Schedule IV Reinsurance
    
    
    150Schedule V Valuation and Qualifying Accounts
    
    
    150Schedule VI Supplemental Information Concerning Property and Casualty Insurance Operations
    
    
    151(a
    )
    
    
    3.
    
    
    EXHIBITS:
 ExhibitDescription of Exhibit
    
    Number(3
    )
    
    Articles of incorporation and by-laws:Certificate of Incorporation of CNA Financial Corporation, as amended May 6, 1987
(Exhibit 3.1 to 1987 Form 10-K incorporated herein by
reference)
    
    
    3.1Certificate of Amendment of Certificate of Incorporation, dated May 14, 1998
(Exhibit 3.1a to 2006 Form 10-K incorporated herein by reference)
    
    
    3.1.1Certificate of Amendment of Certificate of Incorporation, dated May 10, 1999
(Exhibit 3.1 to 1999 Form 10-K incorporated herein by reference)
    
    
    3.1.2By-Laws of CNA Financial Corporation, as amended October 24, 2007
(Exhibit 3ii.1 to Form 8-K filed October 29, 2007 incorporated herein by reference)
    
    
    3.2(4
    )
    
    Instruments defining the rights of security holders, including indentures:CNA Financial Corporation hereby agrees to furnish to the Commission upon request
copies of instruments with respect to long term debt, pursuant
to Item 601(b) (4) (iii) of Regulation S-K
    
    
    4.1(10
    )
    
    Material contracts:Credit Agreement among CNA Financial Corporation, J.P. Morgan Securities Inc., Citibank N.A.,
Bank of America, N.A., JPMorgan Chase Bank N.A.,
Wachovia Bank, N.A. and other lenders named therein, dated August 1, 2007
(Exhibit 99.1 to August 1, 2007 Form 8-K incorporated herein by
reference)
    
    
    10.1
 139




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##### Table of Contents



ExhibitDescription of Exhibit
    
    NumberRegistration Rights Agreement, dated August 8, 2006, between CNA Financial
Corporation and Loews Corporation (Exhibit 10.1 to August 8, 2006 Form
8-K incorporated herein by reference)
    
    
    10.2Investment Facilities and Services Agreement, dated January 1, 2006, by and among Loews/CNA Holdings, Inc., CNA Financial Corporation and the
Participating Subsidiaries
    
    
    10.3Amendment to Investment Facilities and Services Agreement, dated January 1, 2007, by and among Loews/CNA Holdings, Inc. and CNA Financial
Corporation
    
    
    10.3.1Acknowledgement to Investment Facilities and Services Agreement, dated January 1, 2006, by and among Loews/CNA Holdings, Inc., CNA Financial
Corporation, and American Casualty Company of Reading, Pennsylvania
    
    
    10.3.2Acknowledgement to Investment Facilities and Services Agreement, dated January 1, 2006, by and among Loews/CNA Holdings, Inc., CNA Financial
Corporation, and Columbia Casualty Company
    
    
    10.3.3Acknowledgement to Investment Facilities and Services Agreement, dated January 1, 2006, by and among Loews/CNA Holdings, Inc., CNA Financial
Corporation, and Continental Assurance Company
    
    
    10.3.4Acknowledgement to Investment Facilities and Services Agreement, dated January 1, 2006, by and among Loews/CNA Holdings, Inc., CNA Financial
Corporation, and Continental Casualty Company
    
    
    10.3.5Acknowledgement to Investment Facilities and Services Agreement, dated January 1, 2006, by and among Loews/CNA Holdings, Inc., CNA Financial
Corporation, and National Fire Insurance Company of Hartford
    
    
    10.3.6Acknowledgement to Investment Facilities and Services Agreement, dated January 1, 2006, by and among Loews/CNA Holdings, Inc., CNA Financial
Corporation, and The Continental Insurance Company
    
    
    10.3.7Acknowledgement to Investment Facilities and Services Agreement, dated January 1, 2006, by and among Loews/CNA Holdings, Inc., CNA Financial
Corporation, and The Continental Insurance Company of New Jersey
    
    
    10.3.8Acknowledgement to Investment Facilities and Services Agreement, dated January 1, 2006, by and among Loews/CNA Holdings, Inc., CNA Financial
Corporation, and Transportation Insurance Company
    
    
    10.3.9Acknowledgement to Investment Facilities and Services Agreement, dated January 1, 2006, by and among Loews/CNA Holdings, Inc., CNA Financial
Corporation, and Valley Forge Insurance Company
    
    
    10.3.10Federal Income Tax Allocation Agreement, dated February 29, 1980 between CNA Financial Corporation and Loews Corporation (Exhibit 10.2 to 1987
Form 10-K incorporated herein by reference)
    
    
    10.4
 140




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##### Table of Contents



ExhibitDescription of Exhibit
    
    NumberCNA Financial Corporation 2000 Incentive Compensation Plan, as amended and restated, effective as of February 9, 2005 (Exhibit A to Form DEF 14A,
filed March 31, 2005, incorporated herein by reference (as indicated in Form 8-K, filed May 2, 2005, CNAF shareholders voted to approve this plan
on April 27, 2005))
    
    
    10.5CNA Supplemental Executive Retirement Plan, restated as of January 1, 2003 (Exhibit 99.2 to Form 8-K filed January 6, 2005 incorporated herein by
reference)
    
    
    10.6First Amendment to the CNA Supplemental Executive Retirement Plan, dated February 27, 2004 (Exhibit 99.3 to Form 8-K filed January 6, 2005
incorporated herein by reference)
    
    
    10.6.1Second Amendment to the CNA Supplemental Executive Retirement Plan, dated March 23, 2004 (Exhibit 99.4 to Form 8-K filed January 6, 2005
incorporated herein by reference)
    
    
    10.6.2Third Amendment to the CNA Supplemental Executive Retirement Plan, dated December 31, 2004 (Exhibit 99.1 to Form 8-K filed January 6, 2005
incorporated herein by reference)
    
    
    10.6.3Fourth Amendment to the CNA Supplemental Executive Retirement Plan, dated December 31, 2007
    
    
    10.6.4CNA Supplemental Executive Savings and Capital Accumulation Plan, dated July 1, 2003 (Exhibit 10.17 to 2004 Form 10-K incorporated herein by
reference)
    
    
    10.7First Amendment to the CNA Supplemental Executive Savings and Capital Accumulation Plan, dated February 27, 2004 (Exhibit 10.18 to 2004 Form 10-K
incorporated herein by reference)
    
    
    10.7.1Second Amendment to the CNA Supplemental Executive Savings and Capital Accumulation Plan, dated March 23, 2004 (Exhibit 10.19 to 2004 Form 10-K
incorporated herein by reference)
    
    
    10.7.2CNA Financial Corporation 2000 Long Term Incentive Plan, dated August 4, 1999 (Exhibit 4.1 to 1999 Form S-8 filed August 4, 1999, incorporated
herein by reference)
    
    
    10.82008 Incentive Compensation Awards to Executive Officers
    
    
    10.92007 Incentive Compensation Awards to Executive Officers (Exhibit 10.23 to March 31, 2007 Form 10-Q incorporated herein by reference)
    
    
    10.10Form of Award Letter for Long-Term Incentive Cash Award to Executive Officers for the Performance Period Beginning January 1, 2006 and Ending
December 31, 2008, Delivered on April 14, 2006 (Exhibit 99.1 to April 19, 2006 Form 8-K incorporated herein by reference)
    
    
    10.11Form of Award Terms for Long-Term Incentive Cash Award to Executive Officers for the Performance Period Beginning January 1, 2006 and Ending
December 31, 2008, Delivered on April 14, 2006 (Exhibit 99.2 to April 19, 2006 Form 8-K incorporated herein by reference)
    
    
    10.11.1
 141




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##### Table of Contents



ExhibitDescription of Exhibit
    
    NumberEmployment Agreement between Continental Casualty Company and D. Craig Mense, dated August 1, 2007 (Exhibit 10.1 to September 30, 2007 Form 10-Q
incorporated herein by reference)
    
    
    10.12Employment Agreement between CNA Financial Corporation and Stephen W. Lilienthal, dated October 26, 2005 (Exhibit 10.22 to September 30, 2005
Form 10-Q incorporated herein by reference)
    
    
    10.13Employment Agreement between Continental Casualty Company and James R. Lewis, dated October 26, 2005 (Exhibit 10.21 to September 30, 2005 Form
10-Q incorporated herein by reference)
    
    
    10.14Employment Agreement between Continental Casualty Company and Jonathan D. Kantor, dated March 16, 2005 (Exhibit 99.1 to June 13, 2005 Form 8-K
incorporated herein by reference)
    
    
    10.15Employment Agreement between Continental Casualty Company and Michael Fusco, dated April 1, 2004 (Exhibit 10.16 to 2004 Form 10-K incorporated
herein by reference)
    
    
    10.16Amendment to Employment Agreement between Continental Casualty Company and Michael Fusco, dated February 7, 2007 (Exhibit 10.22 to 2006 Form 10-K
incorporated herein by reference)
    
    
    10.16.1(21
    )
    
    Significant Subsidiaries of CNAF
    
    
    21.1(23
    )
    
    Consent of Independent Registered Public Accounting Firm
    
    
    23.1(31
    )
    
    Certification of Chief Executive Officer
    
    
    31.1Certification of Chief Financial Officer
    
    
    31.2(32
    )
    
    Written Statement of the Chief Executive Officer of CNA Financial Corporation Pursuant to 18 U.S.C Section 1350 (As adopted by Section 906 of the
Sarbanes-Oxley Act of 2002)
    
    
    32.1Written Statement of the Chief Financial Officer of CNA Financial Corporation Pursuant to 18 U.S.C Section 1350 (As adopted by Section 906 of the
Sarbanes-Oxley Act of 2002)
    
    
    32.2(b)
    
    
    
    
    
    Exhibits:
None.(c)
    
    
    
    
    
    Condensed Financial Information of Unconsolidated Subsidiaries:
None.
 
 142




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SCHEDULE I. SUMMARY OF INVESTMENTS  OTHER THAN INVESTMENTS IN RELATED PARTIES
 December 31, 2007Cost or
    
    
    EstimatedAmortized
    
    
    Fair
    
    
    CarryingCost
    
    
    Value
    
    
    Value(In millions)Fixed maturity securities available-for-sale:Bonds:U.S. Government and government agencies and authorities  taxable
    
    $
    769
    
    
    $
    860
    
    
    $
    860States, municipalities and political subdivisions  tax exempt
    
    
    7,615
    
    
    
    7,675
    
    
    
    7,675Foreign governments and political subdivisions
    
    
    3,277
    
    
    
    3,350
    
    
    
    3,350Public utilities
    
    
    832
    
    
    
    914
    
    
    
    914All other corporate bonds
    
    
    20,502
    
    
    
    20,223
    
    
    
    20,223Redeemable preferred stocks
    
    
    1,216
    
    
    
    1,058
    
    
    
    1,058Total fixed maturity securities available-for-sale
    
    
    34,211
    
    
    
    34,080
    
    
    
    34,080Fixed maturity securities trading:Bonds:U.S. Government and government agencies and authorities  taxable
    
    
    5
    
    
    
    5
    
    
    
    5Foreign governments and political subdivisions
    
    
    18
    
    
    
    18
    
    
    
    18All other corporate bonds
    
    
    154
    
    
    
    154
    
    
    
    154Total fixed maturity securities trading
    
    
    177
    
    
    
    177
    
    
    
    177Equity securities available-for-sale:Common stocks:Banks, trusts and insurance companies
    
    
    3
    
    
    
    3
    
    
    
    3Industrial and other
    
    
    243
    
    
    
    449
    
    
    
    449Non-redeemable preferred stocks
    
    
    120
    
    
    
    116
    
    
    
    116Total equity securities available-for-sale
    
    
    366
    
    
    $
    568
    
    
    
    568Limited partnership investments
    
    
    2,214
    
    
    
    
    
    
    
    2,214Other invested assets
    
    
    9
    
    
    
    
    
    
    
    46Short term investments available-for-sale
    
    
    4,494
    
    
    
    
    
    
    
    4,497Short term investments trading
    
    
    180
    
    
    
    
    
    
    
    180Total investments
    
    $
    41,651
    
    
    
    
    
    
    $
    41,762
 143




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SCHEDULE II. CONDENSED FINANCIAL INFORMATION OF REGISTRANT (PARENT COMPANY)
 CNA Financial Corporation
Statements of Operations
 Years ended December 31
    
    2007
    
    
    2006
    
    
    2005(In millions)Revenues:Net investment income
    
    $
    20
    
    
    $
    21
    
    
    $
    18Realized investment losses
    
    
    (6
    )
    
    
    (7
    )
    
    
    (29
    )Other income
    
    
    
    
    
    
    1
    
    
    
    Total revenues
    
    
    14
    
    
    
    15
    
    
    
    (11
    )Expenses:Administrative and general
    
    
    3
    
    
    
    2
    
    
    
    9Interest
    
    
    131
    
    
    
    118
    
    
    
    110Total expenses
    
    
    134
    
    
    
    120
    
    
    
    119Loss from operations before income taxes and
equity in net income of subsidiaries
    
    
    (120
    )
    
    
    (105
    )
    
    
    (130
    )Income tax benefit
    
    
    42
    
    
    
    37
    
    
    
    46Loss before equity in net income of subsidiaries
    
    
    (78
    )
    
    
    (68
    )
    
    
    (84
    )Equity in net income of subsidiaries
    
    
    929
    
    
    
    1,176
    
    
    
    348Net Income
    
    $
    851
    
    
    $
    1,108
    
    
    $
    264
  144




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##### Table of Contents



CNA Financial Corporation
Balance Sheets
 December 31
    
    2007
    
    
    2006(In millions, except share data)Assets:Investment in subsidiaries
    
    $
    11,795
    
    
    $
    11,512Fixed maturity securities available-for-sale, at fair value (amortized cost of $6 and $9)
    
    
    6
    
    
    
    9Equity securities available-for-sale, at fair value (cost of $1 and $1)
    
    
    1
    
    
    
    1Short term investments
    
    
    359
    
    
    
    280Receivables for securities sold and collateral
    
    
    13
    
    
    
    1Amounts due from affiliates
    
    
    46
    
    
    
    37Other assets
    
    
    6
    
    
    
    7Total assets
    
    $
    12,226
    
    
    $
    11,847Liabilities and Stockholders Equity:Liabilities:Short term debt
    
    
    350
    
    
    
    Long term debt
    
    
    1,686
    
    
    
    2,035Other liabilities
    
    
    40
    
    
    
    44Total liabilities
    
    
    2,076
    
    
    
    2,079Stockholders equity:Common stock ($2.50 par value; 500,000,000 shares authorized; 273,040,243 shares
issued; and 271,662,278 and 271,108,480 shares outstanding)
    
    
    683
    
    
    
    683Additional paid-in capital
    
    
    2,169
    
    
    
    2,166Retained earnings
    
    
    7,285
    
    
    
    6,486Accumulated other comprehensive income
    
    
    103
    
    
    
    549Treasury stock (1,377,965 and 1,931,763 shares), at cost
    
    
    (39
    )
    
    
    (58
    )10,201
    
    
    
    9,826Notes receivable for the issuance of common stock
    
    
    (51
    )
    
    
    (58
    )Total stockholders equity
    
    
    10,150
    
    
    
    9,768Total liabilities and stockholders equity
    
    $
    12,226
    
    
    $
    11,847
  145




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CNA Financial Corporation
Statements of Cash Flows
 Years ended December 31
    
    2007
    
    
    2006
    
    
    2005(In millions)Cash Flows from Operating Activities:Net income
    
    $
    851
    
    
    $
    1,108
    
    
    $
    264Adjustments to reconcile net income to net cash flows provided by operating activities:Income of subsidiaries
    
    
    (929
    )
    
    
    (1,176
    )
    
    
    (348
    )Dividends received from subsidiaries
    
    
    270
    
    
    
    91
    
    
    
    127Realized investment losses
    
    
    6
    
    
    
    7
    
    
    
    29Other, net
    
    
    (54
    )
    
    
    7
    
    
    
    (59
    )Total adjustments
    
    
    (707
    )
    
    
    (1,071
    )
    
    
    (251
    )Net cash flows provided by operating activities
    
    
    144
    
    
    
    37
    
    
    
    13Cash Flows from Investing Activities:Proceeds from fixed maturity securities
    
    
    3
    
    
    
    1
    
    
    
    8Change in short term investments
    
    
    (63
    )
    
    
    (60
    )
    
    
    563Capital contributions to subsidiaries
    
    
    (1
    )
    
    
    (3
    )
    
    
    (41
    )Return of capital from subsidiaries
    
    
    1
    
    
    
    19
    
    
    
    Other, net
    
    
    (18
    )
    
    
    (7
    )
    
    
    (64
    )Net cash flows provided (used) by investing activities
    
    
    (78
    )
    
    
    (50
    )
    
    
    466Cash Flows from Financing Activities:Dividends paid to stockholders
    
    
    (95
    )
    
    
    
    
    
    
    Proceeds from the issuance of long term debt
    
    
    
    
    
    
    746
    
    
    
    Principal payments on debt
    
    
    
    
    
    
    (250
    )
    
    
    (493
    )Payment to repurchase Series H Issue preferred stock
    
    
    
    
    
    
    (993
    )
    
    
    Proceeds from the issuance of common stock
    
    
    
    
    
    
    499
    
    
    
    Stock options exercised
    
    
    18
    
    
    
    10
    
    
    
    2Other, net
    
    
    11
    
    
    
    1
    
    
    
    12Net cash flows provided (used) by financing activities
    
    
    (66
    )
    
    
    13
    
    
    
    (479
    )Net change in cash
    
    
    
    
    
    
    
    
    
    
    Cash, beginning of year
    
    
    
    
    
    
    
    
    
    
    Cash, end of year
    
    $
    
    
    
    $
    
    
    
    $
    
  146




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##### Table of Contents



Notes to Condensed Financial Information
 A. Basis of Presentation
  B. Debt
  Debt
 December 31
    
    2007
    
    
    2006(In millions)Senior notes:6.450%, face amount of $150, due January 15, 2008
    
    $
    150
    
    
    $
    1506.600%, face amount of $200, due December 15, 2008
    
    
    200
    
    
    
    2006.000%, face amount of $400, due August 15, 2011
    
    
    399
    
    
    
    3985.850%, face amount of $549, due December 15, 2014
    
    
    546
    
    
    
    5466.500%, face amount of $350, due August 15, 2016
    
    
    348
    
    
    
    3486.950%, face amount of $150, due January 15, 2018
    
    
    149
    
    
    
    149Debenture, 7.250%, face amount of $243, due November 15, 2023
    
    
    241
    
    
    
    241Urban Development Action Grant, 1.00%, due May 7, 2019
    
    
    3
    
    
    
    3Total
    
    $
    2,036
    
    
    $
    2,035
   C. Commitments and Contingencies
   147




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148




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##### Table of Contents



SCHEDULE III. SUPPLEMENTARY INSURANCE INFORMATION
 Gross Insurance Reserves
    
    
    
    
    
    
    
    
    
    
    Insurance
    
    
    Amortiz-Claim
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Claims and
    
    
    ationDeferred
    
    
    And Claim
    
    
    Future
    
    
    
    
    
    
    Policy-
    
    
    
    
    
    
    Net
    
    
    Policy-
    
    
    of Deferred
    
    
    Other
    
    
    NetAcquisition
    
    
    Adjustment
    
    
    Policy
    
    
    Unearned
    
    
    holders
    
    
    Net Earned
    
    
    Investment
    
    
    holders
    
    
    Acquisition
    
    
    Operating
    
    
    Written Pre-Costs
    
    
    Expense
    
    
    Benefits
    
    
    Premium
    
    
    Funds
    
    
    Premiums
    
    
    Income (a)
    
    
    Benefits
    
    
    Cost
    
    
    Expenses
    
    
    miums (b)(In millions)December 31, 2007Standard Lines
    
    $
    311
    
    
    $
    12,048
    
    
    $
    
    
    
    $
    1,483
    
    
    $
    26
    
    
    $
    3,379
    
    
    $
    878
    
    
    $
    2,285
    
    
    $
    761
    
    
    $
    381
    
    
    $
    3,267Specialty Lines
    
    
    365
    
    
    
    8,403
    
    
    
    
    
    
    
    1,948
    
    
    
    1
    
    
    
    3,484
    
    
    
    621
    
    
    
    2,194
    
    
    
    744
    
    
    
    372
    
    
    
    3,506Life & Group Non-Core
    
    
    485
    
    
    
    3,027
    
    
    
    7,106
    
    
    
    162
    
    
    
    903
    
    
    
    618
    
    
    
    622
    
    
    
    1,313
    
    
    
    15
    
    
    
    242
    
    
    
    607Corporate & Other Non-Core
    
    
    
    
    
    
    5,110
    
    
    
    
    
    
    
    5
    
    
    
    
    
    
    
    7
    
    
    
    312
    
    
    
    217
    
    
    
    
    
    
    
    143
    
    
    
    6Eliminations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4
    )
    
    
    (4
    )Consolidated Operations
    
    $
    1,161
    
    
    $
    28,588
    
    
    $
    7,106
    
    
    $
    3,598
    
    
    $
    930
    
    
    $
    7,484
    
    
    $
    2,433
    
    
    $
    6,009
    
    
    $
    1,520
    
    
    $
    1,134
    
    
    $
    7,382December 31, 2006Standard Lines
    
    $
    338
    
    
    $
    12,517
    
    
    $
    
    
    
    $
    1,633
    
    
    $
    35
    
    
    $
    3,557
    
    
    $
    840
    
    
    $
    2,597
    
    
    $
    805
    
    
    $
    385
    
    
    $
    3,598Specialty Lines
    
    
    352
    
    
    
    7,946
    
    
    
    
    
    
    
    1,973
    
    
    
    
    
    
    
    3,411
    
    
    
    554
    
    
    
    2,064
    
    
    
    714
    
    
    
    370
    
    
    
    3,431Life & Group Non-Core
    
    
    500
    
    
    
    3,134
    
    
    
    6,645
    
    
    
    173
    
    
    
    980
    
    
    
    641
    
    
    
    698
    
    
    
    1,195
    
    
    
    14
    
    
    
    259
    
    
    
    633Corporate & Other Non-Core
    
    
    
    
    
    
    6,039
    
    
    
    
    
    
    
    5
    
    
    
    
    
    
    
    (1
    )
    
    
    320
    
    
    
    190
    
    
    
    1
    
    
    
    137
    
    
    
    (2
    )Eliminations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5
    )
    
    
    
    
    
    
    1
    
    
    
    
    
    
    
    (6
    )
    
    
    (5
    )Consolidated Operations
    
    $
    1,190
    
    
    $
    29,636
    
    
    $
    6,645
    
    
    $
    3,784
    
    
    $
    1,015
    
    
    $
    7,603
    
    
    $
    2,412
    
    
    $
    6,047
    
    
    $
    1,534
    
    
    $
    1,145
    
    
    $
    7,655December 31, 2005Standard Lines
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    3,518
    
    
    $
    632
    
    
    $
    3,195
    
    
    $
    816
    
    
    $
    361
    
    
    $
    3,473Specialty Lines
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,367
    
    
    
    416
    
    
    
    2,302
    
    
    
    702
    
    
    
    351
    
    
    
    3,372Life & Group Non-Core
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    704
    
    
    
    593
    
    
    
    1,161
    
    
    
    22
    
    
    
    318
    
    
    
    694Corporate & Other Non-Core
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (8
    )
    
    
    251
    
    
    
    343
    
    
    
    3
    
    
    
    138
    
    
    
    (19
    )Eliminations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (12
    )
    
    
    
    
    
    
    (2
    )
    
    
    
    
    
    
    (10
    )
    
    
    (12
    )Consolidated Operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    7,569
    
    
    $
    1,892
    
    
    $
    6,999
    
    
    $
    1,543
    
    
    $
    1,158
    
    
    $
    7,508
 
 (a)
    
    Investment income is allocated based on each segments net carried insurance reserves as
adjusted.(b)
    
    Net written premiums relate to business in property and casualty companies only. 149




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SCHEDULE IV. REINSURANCE
  SCHEDULE V. VALUATION AND QUALIFYING ACCOUNTS
 Balance at
    
    
    Charged to
    
    
    Charged toBeginning
    
    
    Costs and
    
    
    Other
    
    
    
    
    
    
    Balance atof Period
    
    
    Expenses
    
    
    Accounts (a)
    
    
    Deductions
    
    
    End of Period(In millions)Year ended December 31, 2007Deducted from assets:Allowance for doubtful accounts:Insurance and reinsurance receivables
    
    $
    837
    
    
    $
    12
    
    
    $
    2
    
    
    $
    78
    
    
    $
    773Valuation allowance:Deferred income taxes
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Year ended December 31, 2006Deducted from assets:Allowance for doubtful accounts:Insurance and reinsurance receivables
    
    $
    964
    
    
    $
    48
    
    
    $
    3
    
    
    $
    178
    
    
    $
    837Valuation allowance:Deferred income taxes
    
    $
    30
    
    
    $
    
    
    
    $
    
    
    
    $
    30
    
    
    $
    Year ended December 31, 2005Deducted from assets:Allowance for doubtful accounts:Insurance and reinsurance receivables
    
    $
    1,048
    
    
    $
    111
    
    
    $
    3
    
    
    $
    198
    
    
    $
    964Valuation allowance:Deferred income taxes
    
    $
    33
    
    
    $
    (3
    )
    
    $
    
    
    
    $
    
    
    
    $
    30
 
 (a)
    
    Amount includes effects of foreign currency translation. 150




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##### Table of Contents



SCHEDULE VI. SUPPLEMENTAL INFORMATION CONCERNING PROPERTY AND CASUALTY INSURANCE OPERATIONS
 Consolidated Property and Casualty OperationsAs of and for the years ended December 31
    
    2007
    
    2006
    
    2005(In millions)Deferred acquisition costs
    
    $
    1,161
    
    
    $
    1,190Reserves for unpaid claim and claim adjustment expenses
    
    
    28,415
    
    
    
    29,459Discount deducted from claim and claim adjustment expense reserves
above (based on interest rates ranging from 3.0% to 7.5%)
    
    
    1,636
    
    
    
    1,648Unearned premiums
    
    
    3,598
    
    
    
    3,784Net written premiums
    
    
    7,382
    
    
    
    7,655
    
    
    $
    7,509Net earned premiums
    
    
    7,481
    
    
    
    7,595
    
    
    
    7,558Net investment income
    
    
    2,180
    
    
    
    2,035
    
    
    
    1,595Incurred claim and claim adjustment expenses related to current year
    
    
    4,937
    
    
    
    4,837
    
    
    
    5,054Incurred claim and claim adjustment expenses related to prior years
    
    
    220
    
    
    
    332
    
    
    
    1,107Amortization of deferred acquisition costs
    
    
    1,520
    
    
    
    1,534
    
    
    
    1,541Paid claim and claim adjustment expenses
    
    
    5,282
    
    
    
    4,165
    
    
    
    3,541
 151




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##### Table of Contents



SIGNATURES
  CNA Financial CorporationDated: February 22,
2008
    
    By
    
    /s/ Stephen W. LilienthalStephen W. LilienthalChief Executive Officer(Principal Executive Officer)By
    
    /s/ D. Craig MenseD. Craig MenseExecutive Vice President andChief Financial Officer(Principal Financial & Accounting Officer)
  Dated: February 22,
2008
    
    By
    
    /s/ Stephen W. Lilienthal(Stephen W. Lilienthal, Chief ExecutiveOfficer and Chairman of the Board ofDirectors)Dated: February 22,
2008
    
    By
    
    /s/ Paul J. Liska(Paul J. Liska, Director)Dated: February 22,
2008
    
    By
    
    /s/ Jose Montemayor(Jose O. Montemayor, Director)Dated: February 22,
2008
    
    By
    
    /s/ Don M. Randel(Don M. Randel, Director)Dated: February 22,
2008
    
    By
    
    /s/ Joseph Rosenberg(Joseph Rosenberg, Director)Dated: February 22,
2008
    
    By
    
    /s/ Andrew Tisch(Andrew H. Tisch, Director)Dated: February 22,
2008
    
    By
    
    /s/ James S. Tisch(James S. Tisch, Director)Dated: February 22,
2008
    
    By
    
    /s/ Marvin Zonis(Marvin Zonis, Director)
 152